'True and fair' concept freshly endorsed

The 20-year-old definition of the 'true and fair' accounting concept has received a fresh endorsement, following instructions from the Financial Reporting Council.

The FRC instructed Martin Moore QC to review the definition – first written by Lord Hoffman and Dame Mary Arden in 1983 and 1984 and by Dame Mary Arden in 1993 – in the light of significant changes in accounting standards and company law since the last review of the concept.

Moore has endorsed the previous opinions and confirmed the centrality of the true and fair requirement to the preparation of financial statements in the UK, whether they are prepared in accordance with international or UK accounting standards.

Directors must consider whether, taken in the round, the financial statements that they approve are appropriate. Similarly, auditors are required to exercise professional judgment before expressing an audit opinion.

As a result, it will not be sufficient for either directors or auditors to reach such conclusions solely because the financial statements were prepared in accordance with applicable accounting standards.

FRC Chief Executive Paul Boyle said: 'The FRC believes that this Opinion is an important confirmation that the concept of ‘true and fair’ is a key contributor to the integrity of financial reporting in the UK.

In the future, the FRC and its operating bodies with responsibilities for accounting and auditing (i.e. the Accounting Standards Board, the Auditing Practices Board, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board) will have regard to Mr Moore’s Opinion.