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Importance of the true and fair view concept

This study deals with analyzing several methods of accounting that are used by an organization while they operate or function in this competitive world (Skyrms, 2014). It is essential for business organization to obey or follow with the accounting standards that is linked with IFRS and GAAP for presenting a good and fair financial report for their business. The current segment explains true and fair view concepts from the perspective of social contract theory (De Camargo Machado, Martins & Carvalho, 2014). The study properly highlights the fact that true and fair view concept is one of the accounting types of standards that need to be given proper attention. It is because rue and fair view relates directly with social contract especially from the point of view of accounting professions. For this assignment, information are collected from different potential sources that can be used for development purpose that depicts whether social contract discovers true and fair concept in some form or other (Podsakoff, MacKenzie & Podsakoff, 2016).

As rightly put forward by Palea (2014), True and Fair Value concept is a well-known concept among the professional accountants as it meets the basic need for the financial reporting of business enterprise that follow or abide by the accounting standards IFRS. Till now, there is no specific definition that can clearly explain true and fair view concept and for this reason several interpretations are made by the accountant professionals and evaluated in respect to culture, national GAAP as well as accounting tradition in and across the country (Podsakoff, MacKenzie & Podsakoff, 2016).

As opined by Nobes (2015), true and fair view concept considers being the primary principles at the time of presenting the financial statements as well as information. Addition to that, the concept can be linked with the other four important primary concepts that are used for disclosing the information such as matching, prudence, consistency and going concern. It is difficult for financial or account user in comparing the level of performance in respect to rival firms within the stipulated time period (Munteanu & Zuca, 2015).

On analysis, it is noted that there is no specific definition to true and fair view concept and this need proper attention where an entity of professional should make a verdict by the people at the time of preparing financial statements (Podsakoff, MacKenzie & Podsakoff, 2016). In that case, it depends upon the management discretion to decide whether the fact is true and fair and has material and dependability. Furthermore, the used phrase can be linked in more ethical ways where the community tries to use for authority in undertaking the judgment based on the general as well as legal standards (Micheli & Mari, 2014).

Concepts of truth, fairness, and objectivity in accounting

There are different views where it needs to decide whether true and fair view becomes more important than their individual significance where it assumes the fact on differentiating the concept on true and fair view by the auditors (Podsakoff, MacKenzie & Podsakoff, 2016).

  As rightly put forward by Skyrms (2014), it becomes difficult for determining the fact on whether a particular financial statement depicts true and fair information as it does not have any specific definition as such. In addition, many researchers had defined true and fair view concept as per their knowledge and the concept are qualitative in nature and cannot come under unique tool for measurement (De Camargo Machado, Martins & Carvalho, 2014). The concept on true and fair view can be treated as legal as decided by the court. It is the court who decides upon the features and properly explains each of the aspect with proper justification as under:

  • The first feature declared by the Court is Authority where it explains all the transactions need to be official in nature and decided upon the discretion of the management (Podsakoff, MacKenzie & Podsakoff, 2016).
  • The second feature declared by the Court is Accuracy where all the transactions need to be accurate in nature and published with authority (Man & Ciurea, 2016).
  • The third feature declared by the Court is Completeness where all the information or transactions provided need to be completed and no missing parts should be present (De Camargo Machado, Martins & Carvalho, 2014).

From the above discussed qualities, it is understood that the accounts that holds the required qualities help at the time of revealing or portraying real picture as presented financial statements. There are several risks that are intrinsic in nature as mentioned in the financial statements. Therefore, it is not possible for any of the financial reports to have all the above mentioned qualities and need some of the amount of sampling (Podsakoff, MacKenzie & Podsakoff, 2016).

In order to understand true and fair view concept, it is necessary to discuss each of the aspect on separate note:

Truth in Accounting

The first concept that needs proper discussion in the study is truth in accounting (De Camargo Machado, Martins & Carvalho, 2014). It is noted that the non-appearance with truth explains in the accounting process as one of the important issues from the context of accounting. It is important to consider the fact about the knowledge on accounting as it is a normative idea where there are less of opportunities present that are implemented in accounting activities (Albu, Albu & Alexander, 2013).

There should be no sense of biasness present during the implementation process at the time of filing the financial report for specific time frame. It is necessary to get to know about the facts as it is complex in nature (Aras, 2016). The facts should be determined without any biasness in actions. It is necessary for an accountant to remain neutral in their actions so that biasness can be reduced or restricted as far as possible. Neutrality can be considered as one of the important qualitative feature that help in getting access to accounting information in the most appropriate way (De Camargo Machado, Martins & Carvalho, 2014). In that case, it is necessary to eliminate the content of biasness in financial reporting and give rise to neutrality in actions. Furthermore, the financial reports without getting bias results help in properly predicting the future outcomes that influences the particular mode of behavior. Therefore, the neutrality help in developing completeness as well as faithfulness as mentioned in the accounting system and that brings improvement in the accounting statement (Beattie, 2014).

Linking true and fair view concept with social contract theory

Truth in Objectivity

In order to explain the concept of objectivity, it is noted that Objectivity has several meaning in accounting. It requires fineness of getting access to statistical scatterings that help in computing the traits and constructing the measures (Podsakoff, MacKenzie & Podsakoff, 2016). In other words, these measures are discovered as it is one of the important criteria that explain objectivity. It is important to consider the fact where the process help in generating from the accounting aspect so that it offer relevant information that has a feature that has an estimated and aggregate value of the potential distribution. On analysis, it is noted that truth in accounting need to be found out where the requirement of restricting secrecy results to inaccurate as well as discrepant financial reports that affects the operational attributes in the management (Bertomeu, Darrough & Xue, 2017).

Fairness

The term fairness in professional accounting explains the expression of neutrality that is analyzed by the accountants at the time of preparing financial statements. Addition to that, fairness means to the idea where the financial statements are presented to the financial users that need to be fair by all means (Bosse & Phillips, 2016). All the information that are access need to be fair in nature when the information are either neutral or objective

Objectivity is not a statistical concept but rather it is explained in philosophical manner. In addition, it is noted that fairness is the concept that explains the state where the accountants prepare financial statements after collecting all the accounting information that should be honest and fair in terms. Accountants should be preparing the financial statement that should be ethical in nature and involves business practices that are employed in terms of production, auditing as well as presenting the financial outcomes in the most appropriate way (Christensen, Nikolaev & Wittenberg?Moerman, 2016).

True and Fair View Concept is the concept where the word fair and true is viewed as a concept for the accounting process that need to be effective in the method at the time of preparing the financial report (Podsakoff, MacKenzie & Podsakoff, 2016). In addition, the accounting theory needs to be planned in a fair as well as fair view concept so that there is no biasness in results. The concept is development as it helps at the time of evaluating the financial reports as well as statements for smooth functioning of business enterprise. The application of True and Fair View Concept takes into account several conventions as well as concepts where it help in collecting all the relevant accounting information that are disclosed in an effective way (Hyman, 2014).

True and Fair View Concept refers to the historical cost conventions where the traditional process guide to have an effective accounting process. In addition, there are even conventions that take into account some of the measurement concepts such as monetary measurement, materiality as well as realization and separate entity at the same time (Podsakoff, MacKenzie & Podsakoff, 2016).

The topic on True and Fair View Concept depicts social contract (Cooper, Ezzamel & Qu, 2017). In this, it is noted that social contract is a traditional concept where the members of the communities work together for undertaking an implicit agreement so that they cooperate to gain social benefits after sacrificing their individual freedom. Furthermore, social contract is a contract that helps in creating a sense of togetherness and brings improvement in the accounting concepts as well as preparing of financial reports. True and Fair View Concept can be linked with social contract where it sacrifices with the biasness as well as taking into account all the risk that are inherent in nature at the time of preparing financial reports. Furthermore, it is noted that True and Fair View Concept act as a social contract that help in improving the financial statements so that there is smooth functioning of business enterprise. Management as well as other stakeholders works together with the firms so that they can undertake important decisions (Podsakoff, MacKenzie & Podsakoff, 2016).

Here, Social contract refers to a concept where it takes into account prehistoric data that is used for effective mechanism where all the discrepancies and mistakes are obtainable at the time of constructing accounting statement that gets eliminated (De Camargo Machado, Martins & Carvalho, 2014). Addition to that True and Fair View Concept is one of the concepts that is used in the process of accounting and relates with social contract between accounting professions as well as business community as a whole. It requires sense of awareness that prevails in the mind of regulators as well as accounting professions where they sacrifice a part of their benefits towards mutually accepted advantages in an effective way for both the parties. Social contract is one of the ideas or notion that informs the fact about accounting theory that had given proper attention by the accountants at the time of preparing financial statements that prevails in business organization (Podsakoff, MacKenzie & Podsakoff, 2016). Therefore, usefulness of True and Fair View Concept need to improve in the financial statements that explain the concept as under:

Preparation of financial accounts annually helps in comprising financial statements such as Income Statement, Balance Sheet and Cash Flow Statements with proper notes to accounts. In addition, the documents that are present mainly discuss with the composite value as a whole (De Camargo Machado, Martins & Carvalho, 2014).

It is important to prepare the accounts in clear terms in respect to the provisions that are included in the accounting standards (Deegan, 2013).

It is noted that annual reports represents true and fair view of the assets as well as liabilities as presented in the financial statements that help in understanding profit or loss of business firm and getting access to the financial condition or situation (De Camargo Machado, Martins & Carvalho, 2014).

As far as provisions are concerned, it gets related accounting standards that get utilized by the accounting firm as well as country where the operations are not able to represent true and fair view in respect to financial reports (Giordano-Spring, Martinez & Vidal, 2015).

Conclusion 

At the end of the study, it is concluded that topic on True and Fair View Concept at the time of preparing accounting statement and link it with social contract. In addition, the concept contract help in preparing the reports so that it give accurate results without any bias results and people who are preparing the financial reports and influences the statements and creating a false statement. Therefore the availability of social contract helps in eliminating the situations that can bring improvements in the financial position in the accounting firm. The study has properly explained the relevance of social contract in the given assignment. The study had explained the concept of social contract in detail and gets it linked with the True and Fair View Concept at the time of preparing the financial reports in the business organization. True and Fair View Concept of principle help in representing social contract within the accounting profession as well as business community in the most appropriate way.

Reference List

Albu, C. N., Albu, N., & Alexander, D. (2013). The true and fair view concept in Romania: A case study of concept transferability. In Accounting in Central and Eastern Europe (pp. 61-90). Emerald Group Publishing Limited.

ArAs, G. (2016). A handbook of corporate governance and social responsibility. CRC Press.

Beattie, V. (2014). Accounting narratives and the narrative turn in accounting research: Issues, theory, methodology, methods and a research framework. The British Accounting Review, 46(2), 111-134.

Bertomeu, J., Darrough, M., & Xue, W. (2017). Optimal conservatism with earnings manipulation. Contemporary Accounting Research, 34(1), 252-284.

Bosse, D. A., & Phillips, R. A. (2016). Agency theory and bounded self-interest. Academy of Management Review, 41(2), 276-297.

Christensen, H. B., Nikolaev, V. V., & Wittenberg?Moerman, R. (2016). Accounting information in financial contracting: The incomplete contract theory perspective. Journal of Accounting Research, 54(2), 397-435.

Cooper, D. J., Ezzamel, M., & Qu, S. Q. (2017). Popularizing a management accounting idea: The case of the balanced scorecard. Contemporary Accounting Research.

de Camargo Machado, M. J., Martins, E. A., & Carvalho, L. N. (2014). RELIABILITY IN FAIR VALUE OF ASSETS WITHOUT AN ACTIVE MARKET. Advances in Scientific and Applied Accounting, 7(3), 319-338.

Deegan, C. (2013). Financial accounting theory. McGraw-Hill Education Australia.

Giordano-Spring, S., Martinez, I., & Vidal, O. (2015). Historical Cost vs. Fair Value to Measure INCOME in Accounting. Comptabilité-Contrôle-Audit, 21(3), 119-148.

Hyman, D. N. (2014). Public finance: A contemporary application of theory to policy. Cengage Learning.

Man, M., & Ciurea, M. (2016). Transparency of Accounting Information in Achieving Good Corporate Governance. True View and Fair Value. Social Sciences and Education Research Review, 3(1), 41-62.

Micheli, P., & Mari, L. (2014). The theory and practice of performance measurement. Management accounting research, 25(2), 147-156.

Munteanu, V., & Zuca, M. (2015). Debate regarding measuring accounting value: historical cost against fair value. Academic Journal of Economic Studies, 1(4), 91-102.

Nobes, C. (2015). IFRS Ten Years on: Has the IASB Imposed Extensive Use of Fair Value? Has the EU Learnt to Love IFRS? And Does the Use of Fair Value make IFRS Illegal in the EU?. Accounting in Europe, 12(2), 153-170.

Palea, V. (2014). Fair value accounting and its usefulness to financial statement users. Journal of Financial Reporting and Accounting, 12(2), 102-116.

Podsakoff, P. M., MacKenzie, S. B., & Podsakoff, N. P. (2016). Recommendations for creating better concept definitions in the organizational, behavioral, and social sciences. Organizational Research Methods, 19(2), 159-203.

Skyrms, B. (2014). Evolution of the social contract. Cambridge University Press.

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