Concept of true and fair view - Essay Example

Concept of True and Fair View       Concept of True and Fair View Introduction  Business has enhanced the urge of a more equivalent accounting between corporations in different nations. The idea of true and fair view illustrates how examinations should be conducted in making the financial reports significant for investment choices (Elliot & Elliot 1997, p. 11). This paper will analyse the concept of true and fair view while looking at the definition, importance, users, example of companies that utilize the concept, issues linked to the concepts, advantages, and disadvantages.

DefinitionTrue and fair view may be defined in an operation manner. It is perceived to be realized by abiding by all additional minor accounting standards. True and fair view is the rule that is utilized in guidelines ranging from financial standard and auditing to an organization’s law acts. The phrase is applicable to the process an auditor will execute a verdict on the accounting activities of a corporation (Elliot & Elliot 2004, p. 21).Importance of the Concept The true and fair value concept is significant because it is employed in guaranteeing and examining if accounts indicate the correct business activities.

In addition, the true and fair value concept has helped in abolishing mechanical utilization of accounting principles (Arnold, Hope, Southworth & Kirkham 1994, p. 17). Users of the Concept The users of the true and fair value concept include auditors and accountants. Both the auditors and accountants use this concept to set down accounting statement whether they are internally-focused management accounts or external financial accounts. Auditors use the concept to design and perform with extreme determination that will help reveal any significant or material misstatements or errors (Friedlob, & Plewa, 1996, p. 67). Example of Firms That Uses That Concept Firms that utilize the true and fair value concept are those that are registered in the London Stock Exchange, for example, ABB, an international organization dealing in mechanics and primarily in the automation and power technology sectors, and Heathrow Airport Holdings, which operates four airports in Britain (Glautier & Underdown 1994, p. 51).Issues Relating to the Concept There are a number of issues relating to the true and fair value concept.

One, the accounting books should have noted all the business dealings accurately. The concept should record correct business dealings to ensure proper functioning. Two, the accounting books should be made according to the appropriate standards of accounting and have adhered to accountancy principles given by a number of regulatory agencies (Kotter &Cohen 2002, p. 35). This should reflect the adequate accounting standards in finance. Three, there should not be any frauds or errors evident in the accounting books.

For the concept to be successful, the financial records should be free from malpractices. Four, the financial records that have been made by the corporation should concur with the accounting books. There should not be any discrepancies in an organization’s financial records. Finally, Directors should also determine if the financial statements they support are adequate. This will eliminate any doubt during performing business dealings.AdvantagesOne, the true and fair value concept provides a basis for high-level goal of financial coverage, which the comprehensive standards, regulations, and rules are created to accomplish and presumed to attain.

Two, the concept is entirely centred on the needs of the investor (Lewis & Pendrill 2000, p. 17). Disadvantages One, the nature of truth varies as relative inconvertible, a reality or absolute. Two, fair is open to shifting levels of application and interpretation. Third, both fairness and truth may differ according to place and time (Lewis & Pendrill 2000, p. 17). Conclusion Several scholars have tried to define the concept and have not been successful. This means the mystification is significant based on the meaning of the concept and the effect of the concept on accounting activities.

Several nations presume the concept dominates their laws, while others utilize their specified laws with the assistance of extra details in accounting books (Sullivan & Sheffrin 2003, p. 29). ReferencesArnold, J, Hope, T, Southworth, A & Kirkham, L 1994, Financial accounting, Prentice Hall, New Jersey.Elliot, B & Elliot, J 1997, Financial accounting and reporting, Prentice Hall, New Jersey. Elliot, B & Elliot, J 2004, Financial accounting and reporting, Prentice Hall, New Jersey. Friedlob, GT & Plewa, FJ 1996, Understanding balance sheets, John Wiley & Sons, New York.

Glautier, M & Underdown, B 1994, Accounting theory & practice, Pitman, London. Kotter, JP &Cohen, DS 2002, The heart of change, Harvard Business School Publishing, Boston.Lewis, R & Pendrill, D 2000, Advanced financial accounting, Prentice Hall, New Jersey. Sullivan, A & Sheffrin, SM 2003, Economics: Principles in action, Prentice Hall, New Jersey.