When compliance with an accounting standard results in misleading accounts, the standard should be overridden, the UK Financial Reporting Council (FRC) said in a statement published Wednesday.
The presentation of a true and fair view remains a fundamental requirement of financial reporting, the FRC said in a statement that reconfirmed previous guidance.
“The requirement to present a true and fair view in financial statements is enshrined in EU and UK law,” FRC Chief Executive Stephen Haddrill said in a news release. “This statement confirms the fundamental importance of this concept to UK GAAP and IFRS.”
In October, the UK Department for Business, Innovation & Skills and the FRC confirmed that companies are required under the current legal framework to present a true and fair view of their accounts. The statement issued Wednesday updates the application of the true and fair requirement for UK companies under IFRS and UK GAAP. A previous statement was issued in 2011.
Concerns about the status of the “true and fair override” were raised following a language change made by the International Accounting Standards Board (IASB) in 2010, during the first phase of its project to update its conceptual framework, according to the FRC statement.
While terminology has changed, the true and fair override requirement remains, the FRC says, and the 2010 conceptual framework update does not prevent accounts prepared in accordance with IFRS from presenting a true and fair view.
The FRC has sought changes to the IFRS conceptual framework to ensure that it recognises the importance of exercising “prudence” in financial reporting. The FRC said it welcomes recent decisions by the IASB that the FRC said would reintroduce explicit reference to “prudence” in the revised conceptual framework.
—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.