At the end of the audit, when they have examined
the organization, its records, and its financial statements, the auditors
produce a report addressed to the owners in which they express their opinion of
the truth and fairness, or otherwise, of the
the organization, its records, and its financial statements, the auditors
produce a report addressed to the owners in which they express their opinion of
the truth and fairness, or otherwise, of the
The
auditor’s opinion
auditor’s opinion
Auditors, in their report, do not say that the
financial statements do show a true and fair view. They can only say that in
their opinion the financial statements show a true and fair the view. The
reader or user of financial statements will know from their knowledge of the
auditor whether of not to rely on the auditors’ opinion. If the auditors are
known to be independent, honest, and competent, then their opinion will be
relied upon.
financial statements do show a true and fair view. They can only say that in
their opinion the financial statements show a true and fair the view. The
reader or user of financial statements will know from their knowledge of the
auditor whether of not to rely on the auditors’ opinion. If the auditors are
known to be independent, honest, and competent, then their opinion will be
relied upon.
True
and fair
and fair
The expression ‘true and fair’ is central to
auditing and yet it is an abstraction whose meaning is far from clear.
auditing and yet it is an abstraction whose meaning is far from clear.
As we will see, the companies act states that every
company balance sheet and profit and loss account must give a ‘true and fair’
view of the state if affairs and of the profit or loss of the company
respectively, however, unhelpfully, it does not attempt to define what a ‘true
and fair view’ might be.
company balance sheet and profit and loss account must give a ‘true and fair’
view of the state if affairs and of the profit or loss of the company
respectively, however, unhelpfully, it does not attempt to define what a ‘true
and fair view’ might be.
Whatever the meaning might be the starting point is
that a ‘true and fair view’ requires compliance with the legislation and with
all the applicable accounting standards. However, there is an override (called,
rather obviously, the ‘true and fair override’).
that a ‘true and fair view’ requires compliance with the legislation and with
all the applicable accounting standards. However, there is an override (called,
rather obviously, the ‘true and fair override’).
If the auditors consider that compliance with any
particular standard may result in a true and fair view not being shown by the
financial statements they may ignore it, but they have to explain and justify
why they have done so. As might be imagined, this is quite rare.
particular standard may result in a true and fair view not being shown by the
financial statements they may ignore it, but they have to explain and justify
why they have done so. As might be imagined, this is quite rare.
Perhaps we can define what true and fair might mean
by explaining what it does not mean. It does not mean ‘correct in all respects’
or ‘free of all errors’ or ‘absolutely right.
by explaining what it does not mean. It does not mean ‘correct in all respects’
or ‘free of all errors’ or ‘absolutely right.
Truth, for accountants, is not absolute-it is not
as a scientist would measure it, i.e. a truth which is fixed and never changes.
as a scientist would measure it, i.e. a truth which is fixed and never changes.
‘True’, in this case, Means true in accountancy
with the facts that pertain at the time, either at the year end or at the time
the auditors’ report was signed. For example, the balance sheet records assts
and liabilities at values which were considered to be true at the year end
date. The day term the year ends the values of those balances, or some of them,
changes.
with the facts that pertain at the time, either at the year end or at the time
the auditors’ report was signed. For example, the balance sheet records assts
and liabilities at values which were considered to be true at the year end
date. The day term the year ends the values of those balances, or some of them,
changes.
The concept of truth carries with it an
understanding of the fundamental accounting concepts which underlay how the
accounts are prepared, such accruals basis, historical cost etc as well as all
the accounting standards and rules which govern all the disclosures and
presentation of the words and numbers.
understanding of the fundamental accounting concepts which underlay how the
accounts are prepared, such accruals basis, historical cost etc as well as all
the accounting standards and rules which govern all the disclosures and
presentation of the words and numbers.
‘Fair’ is an even more rebellious concept to grasp, just as ‘truth’
carries with it the implication that the accounts have been prepared under generally
understood accounting concepts and rules, so ‘fair’ implies that those rules have
been applied impartially, objectively and with a view to presenting the facts of
the financial situation of the company to readers of the accounts in as
balanced, reasonable and unbiased way as is possible.
carries with it the implication that the accounts have been prepared under generally
understood accounting concepts and rules, so ‘fair’ implies that those rules have
been applied impartially, objectively and with a view to presenting the facts of
the financial situation of the company to readers of the accounts in as
balanced, reasonable and unbiased way as is possible.
