Microsoft Word Document

Topics: Balance sheet, Financial statements, International Financial Reporting Standards Pages: 12 (5970 words) Published: March 21, 2015
Leibler (“True and fair view- an imaginary view”) argues “in an ideal world, and with just a little imagination, accounting standards would always produce a true and fair result. But this is not necessarily so in the real world” (p 61).

o What is the problem that Leibler identifies in his paper with respect to the ‘true and fair’ requirement?

o What solutions does Leibler suggest to ensure that reporting entities do a better job at addressing the ‘true and fair’ requirement?

o Show where the directors of Qantas Limited state the financial statements are true and fair.

o A student says, “Investors want profit to be maximised as this will ensure a maximum share price, and so this is ‘true and fair’” Critically reflect on this flawed argument. How would you define ‘true and fair’? Do you see differences between the concept of ‘true’ and the concept of ‘fair’? :






Investors want profit to be maximised as this will ensure a maximum share price, and so this is ‘true and fair’

In this sentence, we can find the need of investors- “Investors want profit to be maximised”, which means they are interest in higher profit or return. However, does this mean companies must present any financial reports that show a good performance to drive the increase of share price, of course (obviously) not. Sometimes there is a financial deficit rather than making a fraud surplus statement to cheat investors.

In normal sense of accounting knowledge, a true and fair accounting information should be presented accurately and consistently without any errors, such as error of omission- a transaction that is not recorded, Error of omission -- a transaction that is not recorded, Error of commission -- a transaction that is calculated incorrectly. One example of an error of commission is subtracting a figure that should have been added, and Error of principle -- a transaction that is not in accordance with generally accepted accounting principles ( GAAP). One example of an accounting error of principle is an expenditure that is placed in an inappropriate category. All errors would lead to wrong balance of financial report, so far as to mislead the decision making of investors or shareholders. Therefore, a true and fair financial statement is useful for users, and give them ability to make informed decisions. At the same time, those statements indicate a realistic picture of a company’s financial position and performance. As my said above, the balance would be presented truly in the statements whatever it is surplus or deficit. In real life, lots of accountants or auditors try to help their companies to make the financial statements better and then to influence their share price after announcing these favorable statements. Although those reports are applied with the legislation or any accounting standards, such as the Corporation Act or AASB, this is not true and fair way. For example, In this case, Leibler listed a case about the standard treatment of leases in the aircraft industries. It stated that the major airlines own aircraft instead of leasing them, but on the balance sheets aircraft record the cost when acquiring them. However, under make to market accounting, this would result in the decrease of 50% in the market price, from 100M to 50M. But they still reported 100M on the balance sheet. Thus, the final result is not a true and fair, which is not reliable source to present the performance and position of companies.

Neither ‘true’ nor ‘fair’ lends itself to precise definition. The nature of truth, whether it is absolute or relative, whether it exists as a reality, an incontrovertible thing, or as an abstraction,...
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