True and Fair is the term used in the audit report of financial statements to express the condition that financial statements are truly prepared and fairly presented in accordance with the prescribed accounting standards.
For example, audit unqualified opinion of the financial statements stated that the audited financial statements are true and fair view in all material respect.
That means after auditors perform their audit, they found no material misstatements in the financial statements and that financial statements are correctly prepared in accordance with the accounting standard as well as applicable regulations.
These words are not only used in the auditor report but also use in the audit objective of the engagement letter.
Auditors are required to use these words very carefully and in accordance with the international standard of auditing.
In this short article, we will explain the words True and Fair in the audit report along with the way how they are used according to the standard.
Quick Summary on “True and Fair Review”
- The term “True and Fair View” is not defined in ISAs
- The term “Truth” mainly relates to factual accuracy which is mainly related to the “materiality,” which is covered under ISA 320.
- The term “Fair”, is related to the fairness of presentation of information and the view conveyed to the reader.
- A degree of imprecision is inevitable because of inherent limitations.
- “View” indicates that professional judgment has been reached.
- A true and fair view generally implies that IFRS, Standards, IFRIC, and any other applicable financial reporting framework has been complied with.
- The phrases “present fairly, in all material respects” and “give a true and fair view” in the auditor’s opinion in the auditor’s report are regarded as equivalent. Law, regulation or generally accepted practice may determine which phrase is used. (ISA 700, Para 25 or SSA 700, Para 25)
Check out what is audit procedure.
Well, here is what a true fair view of financial statements means.
Meaning of true and fair view:
Let’s break down into two words: True and Fair,
The financial statements are free from any kind of material right?
No matter whether the material misstatements are from error or fraud. The financial statements are true when all kinds of errors are taken into account.
Financial statements are truly prepared when they are respected and followed by the accounting standards and frameworks that the company is using to prepare the statements.
Yet, maybe there is some part of financial statements are not respect the accounting standard. In this case, the materiality concept is used to deal with it.
It means that the financial transactions are treated fairly as they should be and all significant information is sufficiently disclosed in the financial statements to ensure that the users are not misleading.
The fair view mainly focuses on the ways how the quality of the information in the financial statements is.
For example, financial statements have enough comparative information. Information that should have been disclosed is disclosed.
Meaning of present fairly
Present Fairly here mean the same thing as True and Fair view. ISA 700 lets the auditor use both of these terms in the unqualified audit option if the law in those jurisdictions required it.
That means in the audit opinion, the auditor could use a true and fair view to express the audit opinion. But in case the local law required the auditor to use present fairly, the audit allows to use of it and the meaning is the same.
Using true and fair views, and presenting fairly, In All Materially Respects
Auditors can use the phrase either “present fairly, in all material respects,” or the phrase “give a true and fair view” in their opinion as required by local law or local GAAP.
If the local law required to use of present fairly, then the auditor should use this. But if the local law requires using other phrases, then the auditor will need to assess whether that phrase is still similar to ISA or not.