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What is the meaning of the accounting terms "present fairly" and "true and fair view,"...

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c231948 | eNotes Newbie

Posted November 9, 2013 at 5:34 AM via web

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What is the meaning of the accounting terms "present fairly" and "true and fair view," and are there any significant differences between the two terms?

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tamarakh | Middle School Teacher | (Level 1) Educator Emeritus

Posted November 10, 2013 at 6:01 AM (Answer #1)

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When we speak of "true and fair view," we are referring to what accounting holds true as a general rule of conduct or principle, which is the belief that businesses and organizations should truthfully and fairly, or accurately, present information about their "financial conditions and operating results" (Venture Line). A true financial statement would be one that is factual and correct, while a fair financial statement is one that is presented faithfully and without any bias (Accounting Simplified). However, "true and fair view" does not imply that businesses or organization have to relay "absolute truth" concerning their financial statuses or operations. The principle takes into consideration the fact that a business's or organization's management will declare financial statements based on management's own "judgements and estimates"; hence, a true and fair view is a relative truth in relation to the business's or organization's larger picture and also depends on whether or not the business or organization is also complying with other accounting principles (Venture Line).

When businesses or organizations comply with the principle of true and faithful view, they will also "present fairly" their financial statements. When they present fairly, they will satisfactorily release relevant information with enough satisfactory detail, and their statements will not contain any bias. Bias in this sense would refer to any economic growth a company shows by including its factors, or accounts receivable, which is money a customer owes a company for goods or services that the company has provided on credit. Most companies will list these credits as assets, but a financial statement that complies with the principle of "present fairly" will not include these credits as part of their assets (Investor Words).  

Hence, "present fairly" refers to the manner in which businesses or organizations present their financial statements, and a financial statement that complies with the principle of "present fairly" will also comply with the principle of "true and fair view." Hence, the two terms overlap in meaning and "present fairly" is a part of what is done for a company to comply with "true and fair view."

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