The Financial Reporting Council today publishes its analysis of the implications of the new accounting and auditing standards on the ‘True and Fair View’ and auditors’ responsibilities.

Significant changes in financial reporting in the UK have taken place from 2005 as a result of the EU requirement for listed companies to adopt international accounting standards (IAS). Furthermore, the standards that auditors in the UK have to follow have also changed following the introduction in the UK of new standards based on International Standards on Auditing (ISAs). Those changes will potentially affect preparers, auditors and users of financial statements.

The move to IAS will result in changes in key measures such as profit and net assets, the format of financial statements, and the terminology used in the statements. One change in terminology that has received particular prominence is the replacement of “true and fair” by “fair presentation” as the over-arching test that financial statements should satisfy.

The FRC has concluded that, although the introduction of “presents fairly” into the accounting framework by the adoption of IAS and ISAs (UK and Ireland) will result in changes to the format and content of both company accounts and audit reports:

• the concept of the “true and fair view” remains a cornerstone of financial reporting and auditing in the UK;
• there has been no substantive change in the objectives of an audit and the nature of auditors’ responsibilities; and
• the need for professional judgement remains central to the work of preparers of accounts and auditors in the UK.

The FRC is inviting views on both its analysis of the current framework for financial reporting and auditing in the UK and how they should evolve in the future. Views on the future development will be taken into account in the account in the development of the FRC’s Plan & Budget for 2006/07 which is expected to be published in January 2006.

Commenting on the analysis, Sir Bryan Nicholson GBE, chairman of The Financial Reporting Council said:

‘This analysis provides useful guidance to preparers, auditors and users of financial statements on the implications of recent changes to financial reporting in the UK. Our analysis provides reassurance that, notwithstanding the changes that have taken place, the framework for financial reporting and auditing remains robust. The FRC is committed to facilitating a clear channel for all stakeholders to participate in the debate on the future evolution of the framework’.

1. The Financial Reporting Council (FRC) is a unified, independent regulator. Its mission is to promote confidence in corporate reporting and governance. The FRC incorporates five operating boards: the Accounting Standards Board, the Auditing Practices Board, the Financial Reporting Review Panel, the Accountancy Discipline and Investigation Board and the Professional Oversight Board for Accountancy.
2. With effect from accounting periods beginning 1 January 2005 it is a EU requirement for all listed companies to adopt International Accounting Standards.
3. The International Standards of Auditing (UK and Ireland) apply to all audits of financial statements for periods commencing on or after 15 December 2004.
4. Responses on both the analysis of the current financial reporting and auditing framework and how this might evolve in the future should be sent to framework.paper@frc.org.uk or in writing to Paul George, Financial Reporting Council, Aldwych House, 71-91 Aldwych, London WC2B 4HN.
5. All Press enquires should be directed to: Richard Fleck, FRC, telephone 020 7492 2300 or E-mail: richard.fleck@herbertsmith.com.