An Empirical Investigation of the True and Fair Override

Abstract

The True and Fair View (TFV) concept requires UK and EU companies to depart from GAAP or the law if necessary to present a true and fair view of the corporation's financial affairs. We analyze a sample of UK public companies that invoked a TFV override during 1998-2000 to assess whether overrides are used opportunistically. We find overrides increase income and equity significantly, and firms with weaker performance and higher levels of debt employ overrides that are more costly. However, market-based tests indicate that the financial statements of such firms are not less informative than those of the control sample.