Literature Review
The term audit has the Latin origin from which it has been derived and it means to hear. It is regarding the maintenance of the reliability of the financial reporting and the conduct of the business and is all about seeking the truth (Salihu, Annuar & Obid, 2015). The auditors used the term true and fair for convincing the group of users or the company stakeholders regarding the financial statements (Penman, 2015). The financial statements are said to be free from errors and are real is convinced.
The researchers have extensively explored and have tried hard for identifying the function of the true and fair view while auditing. From the different legal regulations and standards of accounting, it is known that the concept of true and fair view has been used in the form of opinion in the financial statements by the Australian accounting standards. Still, it is found to be confusing and a vague term by most of them (Salihu, Annuar & Obid, 2015). Currently, the external auditors are applying the true and fair view, but the clarification is lacking and it is likely not to be clarified in the future also (Sparrow, Scullion & Tarique, 2014).
In financial accounting, it is even not specified by law that whether it is the responsibility of the directors or the auditors for making sure of the truth and fairness. Hence, it is wrongly interpreted as to the role of the directors or the auditors by the various stakeholders (Walters, 2015). The attempt has been made by the current research in addressing the concerns of the Australian accounting standards being faithful to the true and fair view by the stakeholders during the time of auditors providing the financial statements that are true and fair view: even after knowing that the financial statements are hustled up by key drawbacks in accounting.
Ever since there is a dispute over the sense of the statement true and fair view despite that it has been introduced formally by the Companies Act 1948 (UK). For many countries, the concept has continued to be the essential aspect to the regimes of financial reporting apart from that in recent times its application has been extended. However, in Australia, the status of this was regarded as lesser importance by the standards of accounting. The interpretations of this concept have been examined in terms of the anti-formalist laws which were done by two of the royal commissions in contrast to the concept of value (Baporikar, 2016).
Part-A
The pragmatic meaning of the concept was attempted to explain in this paper. However, by the Australian reforms, its replacement was paved off with the concept of accounting of not misleading. It was voiced out by two of the royal commissions stating that the dispute should be bypassed from the meaning of the concept of the true and fair view.
By this, the credibility that is diminishing has to be restored in relation to the audits and the mandatory financial statements. The interpretations which are conflicting can be potentially exceeded by it along with national peculiarities of the concept of the true and fair view. In turn for the international harmonization of the financial reporting, a meaningful direction is provided (de Lautour, 2017).
The origin of the concept of true and fair view (TFV) can be traced back from the joint Stock Companies Registration and Regulation Act of 11844 (UK). It required preparation of balance sheets that is full and fair and has to be essential to the regimes of corporate financial reporting in the UK and many other countries in the world (DesJardins & McCall, 2014).
For limiting the activities that are unprincipled it has been evolved as the device for the opportunists of the corporate financing. These opportunists are known to hinder the function of the corporate capitalism which is effective. A phenomenon that is modern western European is known to originate in the 16th century and then it was exported to the whole world later by the empire building of the economy and the political colonialism. From since the year 1978 in July the distribution of the European community’s fourth directive the concept of true and fair view was stretched throughout the nations of the economic community of Europeans (James & Prout, 2015). It has been also adopted recently by the Nordic countries.
The widespread application of the term cannot be withstood so the interpretations were subjected to the disputes between the lawyers and the accountants. This started since the concept was introduced formally by the Companies Act 1948 (UK). The purpose of which it is served has stilled remained unclear.
Historically, the true and fair view has been designed for viewing some of the legal and accounting aspects. Traditionally, the legal view of the TFV has favored the conservatism in the financial reporting. It was later shaped probably by the late 19th century and the early 20th century. The views have been changed by the court towards the audits functioning and the balance sheet purpose (Klimczak, 2013).
History of True and Fair View
For instance, in Re London and the General Bank, the description of the purpose of the statutory audit is given as providing security to the independent shareholders and consistent information by giving respect to the true financial position of the organization during the time of the audit. The true financial position has been conservatively viewed and voiced out in Newton v Birmingham Small Arms: where the purpose of the balance sheet has been described by the court as presenting the company’s financial position to be good as it was stated and not showing that it was neither nor cannot be better (Mullins, et al., 2017).
On the other hand, in general, the accounting view which is also known as the professional view has a tendency for being compliant with the accounting principles that it has accepted. This is known as the evidence of a prima facie where the accounts are true and fair. Generally, this view has been formed as a result of having focused on the semantics and their forms instead on the substance of the concept of TFV (Nwonyuku, 2015).
Subsequently, the concept of TFV was labeled as, inter alia which is known as the undefined, subtle, comprehensive, old fashioned and not real with respect to modern corporate markets. Apparently, the view of accounting has been shaped by the conceptual framework statements of accounting and standards of accounting in countries like Australia, US, UK, and Canada. A departure from the principles of prudence and conservatism has been advocated generally and the innovation is permitted along with confidence in financial supporting (Parker, 2016).The conservative legal view was found to be incompatible with the increase of the liberal accounting view and is seen apparently as the formula for worldwide disagreement.
Wan-Hussin & Bamahros, (2013) have made some contributions to the Australian accounting standards being the faithful representation. It has been argued, stating that in 1931 the Royal Mail case was the first one which was depicted on the possibilities of producing the audited outcomes. While these outcomes have to meet the legal requirements yet it has not provided the data that is sufficient for auditing. This was done for misleading the shareholders and the investors completely. The first legal standard that has been established for the companies was by no means the true and fair view.
This was published in the financial reports and the records that are underlying from which it was prepared by them (Walters, 2015).Various other acts were drawn up as these also require to be made with the similar disclosures all of them include the terms, correct, just, exact, distinct, full and fair, etc. for representing the conduct of the company (Salihu, Annuar & Obid, 2015). It can be outlined back to the year 1773. From the term true and correct it has been changed to true and fair, which was supported by the UK’s accountancy body that is the largest professional body known as the Institute of Chartered Accountants of England and Wales (Peetatawatchai & Richardson, 2016).
The Emergence of TFV (How, When and Where)
Generally, the attestation of true and fair is understood for compliance requirement which is applied to the accounting standards (Kershaw, 2006).However, the (Mullins, et al., 2017) has used the case of the Parmalat for proving the link between the business financial reporting and the corporate governance. The principle of accounting of the implementation of the true and fair view has been negatively influenced.
For the auditor’s gateway, the reporting of true and fair view has just become the chance. The Australian accounting standards were faithfully representing from the time of introduction of true and fair view as a concept in the entire European Union by the Fourth Directive of the European Economic Community (James & Prout, 2015).
The accounting methodologies of the United Kingdom and the United States also adopt the same versions as that of Australia for the ultimate goal of the financial reporting (DesJardins & McCall, 2014).
A fair representation is to be shown by the financial reports in the United States as per with GAAP while the financial statements have to present the true and fair view regarding the conditions of the business and the particular outcomes, in the United Kingdom as claimed by the author. In both of these cases ironically the law was not involved in defining the term.
Hence, for achieving the fairness in the true and fair view, it is dependent still on the judgments given professionally and by applying the general rules in particular situations. It has been appealed by (Mullins, et al., 2017) that for framing the opinion on the true and fair view is not really possible and is not found to be practical, especially if the company has only one auditor and he is having a strong concern for the company. If at all, it is done, then it will be bound by many of the ill variances and the imperfections since it is evident from the recent episode of Satyam.
Conclusion
The above-described findings were very much relevant to the study. Firstly, in the financial statements for achieving the true and fair view the company has to strictly follow the professional codes of ethics and the law of the firm.
Secondly, the independence of auditors on the true and fair view should be influenced close positively. This was revealed in the research studies that were conducted previously. It has been interpreted that if the independence level is high, then the truth in the term true and fair view will also be higher.
Historical Purpose of TFV
Thirdly, there is growing concern regarding the providence of acceptance of the non-audit services besides the audit service. For avoiding such confusions in the future, it has been suggested by the research that this aspect should be controlled by the lawmakers and the professional bodies to a certain extent though not fully.
Fourthly, the level of satisfaction can be higher if there is an establishment of positive relationship as suggested. It is stated that the stakeholders should be able to interpret the auditors on the report of true and fair view. Fifthly, between the stakeholder satisfaction and the true and fair view concept, there is a positive relationship that is closely associated. It literally means that if the satisfaction of the stakeholders is higher than their demand for retaining the concept will also be higher.
Finally, it can be concluded that the true and fair concept is actually the old concept. On this concept, many minor changes were tried which has led to more turmoil and it is confusing for the stakeholders. Lack of independence has been noticed in the auditors and the initiatives are lacking by the professional bodies and the setters of standards, hence it has caused for most of the audit firms and the audit partners for taking the advantage of the same and eventually diminishes the funds of the stakeholders.
In conclusion, it can be noticed from the reactions that if the concept of true and fair view is not elucidated, then there would be misunderstandings and the expectation gap increases. Along with this between the user information and the provider of the information a conflict of interest is likely to be increased. Hence the true and fair view is in the need to be renovated. If the concept of true and fair view is absent, then the whole exercise of financial reporting and the communication will become useless and will merely remain as the legal formality.
References
Baporikar, N., 2016. Contemporary issues in accounting and subject code finance.
deLautour, V.J., 2017. Religions and Contemporary Accounting Issues.In Accounting, Capitalism and the Revealed Religions (pp. 53-74).Springer International Publishing.
DesJardins, J.R. and McCall, J.J., 2014. Contemporary issues in business ethics.Cengage Learning.
James, A. and Prout, A. eds., 2015. Constructing and reconstructing childhood: Contemporary issues in the sociological study of childhood. Routledge.
Klimczak, K., 2013. Reserves In Traditional And Contemporary Accounting. European Journal of Business and Economics, 8(2).
Mullins, M., O’Regan, P., Kinsella, S. and Regan, K., 2017.Accounting for Intangibles, the Issue of Memory and the Philosophy of Bergson.
Nwonyuku, K.N., 2015. Behavioral Implications of Management Accounting Practices: A Contemporary Issue in Management Accounting. Browser Download This Paper.
Parker, L.D., 2016. The global Fayol: contemporary management and accounting traces. Entrepriseset histoire, (2), pp.51-63.
Peel, D., Waples, R.S., Macbeth, G.M., Do, C. and Ovenden, J.R., 2013. Accounting for missing data in the estimation of contemporary genetic effective population size (Ne). Molecular ecology resources, 13(2), pp.243-253.
Peetatawatchai, P. and Richardson, G., 2016. Journal of Contemporary Accounting and Economics (JCAE) Doctoral Consortium Chulalongkorn University, Bangkok January 6, 2016.
Penman, S., 2015. Valuation models: An issue of accounting theory.
Salihu, I.A., Annuar, H.A. and Obid, S.N.S., 2015. Journal of Contemporary Accounting & Economics. Journal of Contemporary Accounting & Economics, 11, pp.138-147.
Sparrow, P., Scullion, H. and Tarique, I. eds., 2014. Strategic talent management: Contemporary issues in international context. Cambridge University Press.
Walters, M., 2015.Keeping up with practice: integrating contemporary practice issues into management accounting coursework. Journal of Business Cases and Applications, 13, p.1.
Wan-Hussin, W.N. and Bamahros, H.M., 2013.Journal of Contemporary Accounting & Economics.
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