It’s time for a true and fair view

Abstract

The standard unqualified United States audit report states that the firm’s financial statements present fairly, in all material respects, the financial position of the company at year end, the results of operations, and its cash flows, in conformity with generally accepted accounting principles (GAAP). The United Kingdom counterpart states that the company accounts give a true and fair view (TFV). The focus on conformity with GAAP in the US has created a rule-dominated audit arena which, in effect, means that if the audited financial statements are in accordance with GAAP, the auditor will find them acceptable. We offer modified audit report terminology that substitutes “true and fair view” for “present fairly”. Although Rutherford [J. Business Financial Accounting 12 (1985) 483], Houghton [Accounting Organizations Soc. 12 (1987) 143], and Karan (2002) have cited problems with the TFV language, especially in its interpretation, we find the phrase superior to “present fairly” and propose an operational definition for its application.