True and fair view

European accounting directives, which IFRS may not contravene if they are to be used in the EU, require that the financial statements give a ‘true and fair view’ of the financial situation of the company. There is an extensive literature on what this may mean, and one view is that it is an overriding quality that the financial statements should not be misleading. Despite the prominence of this concept in European law and in debate about accounting, especially in the UK where the notion originated, it does not appear to be part of the IASB’s collective thinking.

IAS 1 Presentation of Financial Statements says that compliance with IFRS will normally ‘fairly represent’ (= give a true and fair view) of the financial situation, as discussed earlier in Chapter 2. Sir David Tweedie, first chairman of the IASB and former chairman of the UK Accounting Standards Board, fought very hard in the early part of the first decade to retain the concept when American members of the IASB were trying to remove it; Board members hardly ever mention it in debate. Essentially in their thinking, the Conceptual Framework could be taken as a detailed elaboration of what is meant by the true and fair view, and so it is sufficient to comply with the framework.

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