Analysis of Factors Present in Financial Reporting Standards Leading to Manipulate True & Fair View of an Entity's Financial Statements

Abstract

Users of financial statements range from small investor to government all have diffident interest in the financial position and performance of the entity. Government uses the financial statement of the companies to estimate the tax liability on the profits. Authorities also need these statements to ensure the compliance with certain laws and regulations. Financial institutions like bank and others in financial markets demand from companies financial statements to assess the liquidity and value of the companies to extend credits facilities. Investors need to assess the past and future growth aspect and earning of the company to decide whether or not they should invest in the entity. Users of financial statements use the financial information presented by the management of the company. This information may be biased to achieve certain objective by the management like a constant profits history or earning history to attract new investment for future prospect of the entity or to obtain new credit facility from a financial institution. Users require such financial information which reflects a true picture of the financial position and performance of the entity to make their economic decision.The understanding of how financial statements are prepared and what information it depicts are important for a user of financial statement. The Framework for preparation and presentation of financial statement describes the fundamental assumptions and underlie characteristics of financial statement that should be present to ensure that these statements present the financial position and performance of the entity fairly. The concept of true & fair view is associated with application of Financial Reporting Standards and use of conceptual framework while preparing the financial statements. Under different circumstances either caused by the environment external or management objectives internal, financial information has been manipulated with the help of Financial Reporting Standards. It has been done to have such financial statements which were in accordance with the objective of management and to obtain such results which were desired. The basic principal of preparation and presentation of financial statements, to give users of the financial statements such financial information which helps them in making effective and efficient economic decisions, has been compromised. The objective of this study was to analyze such factors present in Financial Reporting Standards that causes deviation from true & fair view concept.