1. Concept of ‘True and Fair view’ in
Financial accounting
Presented by –
- Joel Lopes
- Prashant Gonsalves

2. The phrase can be broken into two parts viz.
True & Fair view
True
• True can mean in
accordance with the facts.
Fair View
• Fair View has many
elements –
accordance with exceptions,
relevance, informational
needs, concordance with
accounting purposes
(reporting), objectivity,
freedom from bias,
disclosure & materiality.

3. Meaning of ‘True and Fair’
• The expression ‘true & fair view’ is an abstract idea of
immense importance & difficulty.
• It is the principle that is used in guidelines ranging from
auditing and financial accounting .
• It is used to describe the required standard of financial
reporting but equally to justify decisions, which require a
certain amount of arbitrary judgement making.
• A true and fair view is not a guarantee, but an opinion
• It is an idealistic aim for preparers of financial statements to
strive for.

4. Defination
How can the accountant be sure that the statements show a true and fair
view, especially when there is no precise definition??
There are many definitions and explanations in the Statement of Principles,
but they are qualitative rather than specific measurements.
A ‘True & Fair view’ is a companies act concept and is therefore a legal
notion. However, neither the companies act, nor the court have ever
attempted to define it.
They do give some specific attributes: -
• Authority: all transactions are official and above board.
• Accurate: all information provided is accurate, e.g. sales invoices give full
details of vat, discount, and amounts payable
• Complete: there should be no missing dockets in the accounting system.
If the accounts hold the above qualities, they are likely to give a true & fair picture.

5. Objective
It will be said that the financial statements and the books of account show true and
fair view of the business when the following conditions are fulfilled: -
• The books of account have recorded all the business transaction correctly.
• The books of account have been prepared according to the accepted principles of
accountancy and have followed accounting standards issued by different
regulatory bodies.
• There are no errors and frauds present in the books of account.
• The financial statements that have been prepared by the company are in
conformity with the books of account.
• In the preparing the financial statements, all mandatory provisions of companies
Act and other relevant laws have been followed.
When all the above facts are taken care by a concern in preparing the financial
statements, it will be said that these statements show true and fair view of the
affairs of that business concern.

6. To support "true and fair view“ expression, accounting has
adopted certain concepts and conventions which help to ensure
that accounting information is presented accurately and
consistently
Accounting Concepts
• Going Concern
• Consistency
• Prudence
• Accruals (Matching)
Accounting Conventions
• Monetary measurement
• Separate entity
• Realization
• Materiality

7. Does one small error mean that the accounts don’t
show a ‘true and fair’ view?
• It is not a precise science; instead it is based on objective and
subjective judgements depending on the familiarity with the
organisation. The accounts can be manipulated in many ways.
The more experience management/accountant has the easier
it is for them to hide transactions.
• There are inherent risks in each accounting system, or there
might not be a system of control at all so detection of fraud is
almost impossible. Limited sampling means the auditor can
only be ‘reasonably happy’ with the accounts and if he is, his
opinion will be that they give a ‘true and fair’ view.

8. Does following financial statement give true and fair view??
• During the process of audit you have found
that M/s K M Knitwear has purchased one
Honda Civic car of Rs. 18 Lacs and entry
has been passed as expenses in to the
profit and loss account.
Ans. NO, here the Honda Civic car is fixed asset which should be shown
as fixed assets in balance sheet and not as expenses in the profit and
loss account. Only depreciation is allowed as expenses. Here the profit
is under valued by amount of Rs. 18 Lacs.

9. Does following financial statement give true and fair view??
• Secured loan received from
state bank of India amounting
Rs. 75 Lacs shown as unsecured loan.
Ans. In this case readers might assume that the loan acquired is
free from any charge or mortgage. But it is not in reality. So
financial statement does not give true and fair view.

10. True and fair and accounting standards
True and fair is not something that is merely a
separate add-on to accounting standards.
Rather the whole essence of standards is to
provide for recognition, measurement,
presentation and disclosure for specific aspects
of financial reporting in a way that reflects
economic reality and hence that provides a true
and fair view.

11. The approach to be taken by auditors
• The main object of audit is to find out whether the financial
statements prepared by a company show the true and fair view of
the financial state of affairs of a company and if not then in what
respect they are not showing.
• The obligations of an auditor when giving an opinion on a
companyʹs financial statements are set out in Companies Act.
Those obligations include –
Stating whether in their opinion, the accounts give a true and fair
view
Against that background, it is clear that if auditors are to discharge
properly their legal and professional responsibilities.
They should stand back as they approach finalisation of those
accounts and consider whether in view of the issues that they have
addressed in the course of the audit, the accounts do indeed give a
true and fair view.