Importance of ‘True and Fair View of Financial Statements

Importance of consecutive and Fair View of Financial StatementsIntroductionThis evidence focuses on the definition of the squ ar(a) and clean medical prognosis and how to use in bill practically. In my opinion, rightful(a) and funfair skyline is essential in the sincere world of accounting because the company has to provide reliable and relevant information to demonstrate its actual monetary situation in financial report. However, from December 2013, the true and fair view is not defined in Corporations Act s. 295(4)(d) and other regulations or legislations. This is because it has been a controversial debate towards whether the exact nature of true and fair view. Therefore, the following essay will explain the importance of the true and fair view in terms of the appropriate disclo sure as shooting of material matters in financial statement and the frustration in terms of the definition as well.What is received and Fair?The true and fair view pattern is one of dickens co mpeting but not mutually exclusive legal standards for financial reporting quality that have been subject to debate on their meaning, use and importance. The other is break fairly in conformity with generally accepted accounting principles (GAAP). The mainly prescriptive literature suggests that each regime that requires compliance with true and fair view tends to address and interpret the concept according to specific historical, social, cultural, political and economic roots and environments (Deegan Michael 2012).The nature of justness, whether absolute or relative, it is the existence of a trustworthyity, an unquestionable thing, or as an abstract concept, either dependent or independent of believers. The interpretation equated with the truth and fairness to the relevance together with adequate disclosure in financial report. In accounting concept, True and fair view indicates that the financial statement must not contain material misstatement and actually reflect the financi al surgical operation and position on the company(Deegan Michael 2012). To be specific, True means the financial statement accord with the reality and formal reporting framework such as conceptual framework and free from any unreal information which could mislead the users. Fair means the information in financial statement do not take any personal prejudice or bias thus it could reflect the economic substance or transaction.The Importance of True and Fair in storyThe Corporations Act requires the accountants to provide true and fair information so that the accounts of the company can convey a true and fair view explicitly. Under s. 297, it is essential that the financial statements and notes should to give a true and fair care for of the entitys financial position in the financial year. Moreover, s. 308 requires auditors to give a true and fair view in the annual financial statements and comply with accounting standards. Beside to the Corporations Act, Chastney (1975) suggests that fairness means that, in order to achieve a true and fair view financial reports should present information both impartially and in a manner that a reader can understand clearly.The concepts of truth and fairness are of great significance to ensure the accounting information to be reliable. The information reflected in the financial repot includes the quantitys of assets and liabilities, the calculation of profit and capital, as well as the actual quantities involved in business activities (Ryan 1988). The information reveal in financial statements should be fair to shareholders, public and other related stakeholders. Thus, directors and auditors in a company have an obligation to comply with the true and fair value in all accounting activities.For example, four particular information should be disclosed in the financial statement. These information are required to be true and fair to reflect the financial performance and position of the company. The four information require arecapital maintenance, stewardship. Liquidity and net realizable value. From the perspective of true and fair, these four information are required as followsCapital maintenance want to satisfy the needs of shareholders for disclosing the annual profit legally available for dividend, retained profit and the amount and form of paid-up capital.Stewardship need to satisfy the needs for disclosing the results achieved by directors from the use of funds and whether the investment are following the objective of the company (Power 2010).Liquidity are quired to serve as an indication to the solvency. The information should clarify the abilities of companies to met liabilities in short term, the amount of bank overdraft and the amount of any securities to secured companys debts (Chastney 1975).Net realizable value disclosure are needed to make sure shareholders do not sell their shares which are parts of net realizable value but was available to the company.Under these interpretations, the measurement of periodic profit ground on detail monetary model, which elaborate the demand and actual application of how fairness reflected in the financial statement (Gaffikin, Dagwell Wines 2004).Moreover, all the measurements should be internally uniform and comply with the applying of the accounting System.The value of the true and fair view also reflect the compliance of the transactions with relevant regulations, statutory provision and other accounting standard. For example, the accounting policies applied in the organization should be appropriate to a accompanys business, and the acquirements and recommendations in accounting standards can be practical in the use of achieving companys actual financial objectives (Aisbitt Nobes 2001). Specially, AASB 1001 requires the accounting policies should to ensure the substance of the underlying transactions or other events , satisfying the concepts of relevance and reliableness (AASB). This demands the actual economic nature and effect of the events to be reported. At last, the truth and fairness also make contributions to the companys decision making. This is because the relevance and reliableness has been ensured and the managers can predict the future perspective according to the useful information reported in the financial statement (Ijiri Jaedicke 2004).How to define True and Fair?However, True and fair concept is not yet defined by authority, also some way to define that in view of its relationship to the various components of a true and fair. (Lee, 1982) There is also no legal concept prescribe the notion of true and fair. Sometimes the application of true and fair valve go removed beyond of technical rules of accounting (Aisbitt Nobes 2001). For example, stemming from the meaning of compliance with the facts, truth refers to empirical correspondence in accounting terminology. But in practical accounting, the value of truth is not limited to its literal definition. It also expand to deductive valid ity in audit process. Further more, the application of fair also involved in the appropriate general accounting model for measurement of periodic profit and capital. That is to say, there is no fixed standard to rule what is exactly the meaning of true and fair value in practical accounting.On the other hand, although true and fair view is really essential in accounting framework, however, in real life sometimes it is quite hard for the accountant to make absolute right decision in terms of following absolute truth and fairness. For example, in the process of determining the depreciation, several methods are available such as declining balance method, maximum amount method, multi-level method and the basic method (Ryan 1988). In intimately cases, several options are accessible and reasonable, but different methods could lead to different calculation answers, affecting the estimation of companys financial performance. When the accountant clothe the formula into the reality, they ha ve to take into account the companys position and financial performance target, then making the optimal decision (Lee 1982). In this situation, the concept of true and fair view do not have fixed rules and the accountant may use the professional judgment to make the final decision. inductionTo conclude, true and fair value are of great concern in accounting, especially in financial statements. The idea that true and fair value measurement is part of professional identification in terms of the releasability and relevance of the information disclosed in the financial report. However, in most cases, the technical standard consideration of true and fair value are not obvious and uniform, which address impediment to real practicability of the interpretations. This is because the notions of relevance and reliability cannot be defined individually of the whole accounting system and are always subject to changes (Power 2010).Reference listAisbitt, S Nobes, C 2001, The true and fair view requirement in recent national implementations, Accounting and Business Research, vol. 31, no. 2, pp. 83-90Australian Accounting Standard Board 2010, Complied AASB Standard AASB 117, Australian Government Australian Accounting Standards Board, Australia.Chastney, JG 1975, True and fair view a study of the history and meaning of true and fair and a consideration of the impact of the fourth directive, Institute of Chartered Accountants in England and Wales, LondonDeegan C., 2012 Australian Financial Accounting, 7th ed, McGraw-Hill, Nth RydeGaffikin M Dagwell R Wines G 2004 Corporate accounting in Australia 3rd edition University of New sec Wales Press Ltd NSWIjiri, Y Jaedicke, R 2004, Reliability and objectivity of accounting measurements, The Accounting Review, vol. 41, no. 3, pp. 471483.Lee, TA 1982, The will-o-the-wisp of true and fair, The Accountant, vol. 187, no. 5601, pp. 16-18.Power, M 2010, Fair value accountin financial economics and the transformation of reliability, Acc ounting and Business Research, vol. 40, no. 3, pp. 197-210.Ryan, JB 1988, A True and Fair View A Revised Accounting Interpretation, University of Wollongong, Wollongong