Quo vadis true and fair view?

Abstract

In this article we call attention to the confusion which exists concerning the meaning of the prescription true and fair view (TFV) as it relates to a company's external financial reporting and auditing. A review of the literature and of the positions taken by accounting standard setters on this issue shows that norm-setters within this area are not able to specify the meaning of the TFV concept, while they seemingly apply the concept in one form or another. The objective of this article is to tie accounting, auditing and capital market theory together in order to clarify the meaning of TFV and to define the role that TFV should play in financial reporting and auditing, irrespective of national boundaries. In developing the meaning of TFV, we use the concepts originating in the neoclassical value theory and their application in finance in the form of the efficient market theory. This provides us with the necessary basis for answering the inevitable questions concerning true and fair in relation to what and to whom. Our definition of TFV provides us with the means to clarify the principle of confidentality in auditing. We conclude that the market is efficient when exchange value and intrinsic value are equal and that the information policy of any enterprise at any time ought to aim at creating efficient capital markets. We also conclude that there exists no state of opposition between the real information interests of different user groups.