The Financial Reporting Council (FRC) today publishes a statement reconfirming that the presentation of a true and fair view remains a fundamental requirement of financial reporting.
In October 2013, the Department for Business, Innovation & Skills (BIS) and the FRC confirmed that the current legal framework requires companies to present a true and fair view. Consistent with this, the FRC today publishes an updated statement on the application of the true and fair requirement under International Financial Reporting Standards (IFRS) and UK GAAP. A previous statement was issued in 2011.
The new statement reflects developments in UK GAAP, the now finalised European audit legislation, the legal advice obtained and published by the FRC in October 2013, and feedback from stakeholders seeking clarity as to the primary requirement to present a true and fair view.
In the vast majority of cases a true and fair view will be achieved by compliance with accounting standards and by additional disclosure to fully explain an issue. However, where compliance with an accounting standard would result in accounts being so misleading that they would conflict with the objectives of financial statements, the standard should be overridden. The FRC will continue to discharge its responsibilities in relation to the monitoring and enforcement of reporting on that basis.
The FRC seeks improvements in international financial reporting standards and the IASB’s Conceptual Framework.
In particular the FRC has sought changes to the Conceptual Framework that ensure it recognises fully the objective of providing information that specifically helps investors assess the stewardship of the company’s assets; and the importance of exercising prudence, meaning the exercise of caution, in reporting.
Accordingly, the FRC welcomes the IASB’s recent decisions, expected to be implemented in 2015, to reintroduce explicit reference to prudence and to increase the prominence given to stewardship in the revised Conceptual Framework.
Stephen Haddrill, Chief Executive of the FRC said,
Notes to editors:
“The requirement to present a true and fair view in financial statements is enshrined in EU and UK law. This statement confirms the fundamental importance of this concept to UK GAAP and IFRS.”
The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We also monitor and take action to promote the quality of corporate reporting and auditing. We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
The IASB issued “The Conceptual Framework for Financial Reporting” in 2010 which incorporated revised and unrevised revised chapters of its previous framework document. The IASB has a current project to complete its revision of the Conceptual Framework and recently tentatively agreed to reintroduce the concepts of prudence and give greater prominence to stewardship. See IASB Update for May 2014 at http://media.ifrs.org/2014/IASB/May/IASB-Update-May-2014.html#7
New UK GAAP is mainly set out in FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.
The paper on the true and fair requirement is available on the FRC website here.
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