FRC statement and QC's opinion on 'true and fair'

A look at the Financial Reporting Council's 2008 statement

The 'true and fair' concept has been a part of English law and central to accounting and auditing practice in the UK for many decades.

There has been no statutory definition of 'true and fair'. The most authoritative statements as to the meaning have been legal opinions written by Lord Hoffman and Dame Mary Arden in 1983 and 1984, and by Arden in 1993 ('the Opinions').

Since those opinions were written, there have been some significant changes in accounting standards and company law which have led some to question whether the views expressed remain applicable.

In these circumstances, the Financial Reporting Council (FRC) concluded that it would be helpful to its preparers, auditors and users of financial statements if it commissioned a further legal opinion to ascertain whether the approach to 'true and fair' taken in the opinions ought to be revised.

The FRC instructed Martin Moore QC. In his opinion, Moore has endorsed the analysis in the opinions of Hoffman and Arden and confirmed the centrality of the true and fair requirement to the preparation of financial statements in the UK, whether they are prepared in accordance with international or UK accounting standards.

Directors must consider whether, taken in the round, the financial statements that they approve are appropriate. Similarly, auditors are required to exercise professional judgment before expressing an audit opinion.

As a result, the opinion confirms that it will not be sufficient for either directors or auditors to reach such conclusions solely because the financial statements were prepared in accordance with applicable accounting standards.

The FRC believes that this opinion is an important confirmation of a key contributor to the integrity of financial reporting in the UK.

The full opinion by Martin Moore QC can be downloaded from the 'Related documents' section on this page.