True and Fair View of Financial Statements | Audit Concept
True and fair view in auditing means that the financial statements are free from material misstatements and faithfully represent the financial performance and position of the entity.
Although the expression of true and fair view is not strictly defined in the accounting literature, we may derive the following general conclusions as to its meaning:
True suggests that the financial statements are factually correct and have been prepared according to applicable reporting framework such as the IFRS and they do not contain any material misstatements that may mislead the users. Misstatements may result from material errors or omissions of transactions & balances in the financial statements.
Fair implies that the financial statements present the information faithfully without any element of bias and they reflect the economic substance of transactions rather than just their legal form.
Application & Importance
Preparation of true and fair financial statements has been expressly recognized as one of the responsibilities of the directors of companies in the corporate law of several countries such as in the Companies Act 2006 in the UK. Auditors must therefore consider whether directors have fulfilled their responsibility for the preparation of true and fair financial statements when providing an audit opinion.
Company law of certain jurisdictions require the auditors to expressly state in their audit report whether in their opinion the financial statements present a true and fair view of the financial performance and position of the entity.