CPA Paper P1 Corporate Reporting TOPIC 4 - FAITHFUL REPRESENTATION
Financial Statements are often described as showing a “true and fair view” or a “faithful representation” of the financial position and performance of an entity. IAS 1 “Presentation of Financial Statements” states that “Fair presentation requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the Framework”.
Faithful representation is linked to Substance Over Form.
IAS 1 appears to equate fair presentation with compliance with IAS In some situations, a departure from accounting standards is needed to ensure a faithful representation of a transaction or event (refer to IAS 8 Accounting Policies).
The requirement to present fairly also applies to transactions which are not covered by any specific accounting standard.
Where Fair Presentation conflicts with an Accounting Standard Per IAS 1, in rare circumstances, compliance with an accounting standard may not lead to faithful representation.
An entity can then depart from the requirements of the accounting standard subject to the following disclosures 1.
that management has concluded that the financial statements give a faithful representation.
2.
that it has complied with applicable standards except that it has departed from a particular requirement to achieve a fair presentation.
3.
the title of the standard which has been departed from, the nature of the departure, the treatment adopted.
4.
For each period presented, the financial impact of the departure on each item in the financial statements that would have been reported in complying with the requirement.
© Cenit Online 2015 1
CPA Paper P1 Corporate Reporting Fundamental Qualitative Characteristic of Financial Statements Fair Presentation
Compliance With IAS
(Faithful Representation)
A departure from IAS allowed in order to achieve a fair Presentation
FAITHFUL REPRESENTATION (SUBSTANCE OVER FORM)
© Cenit Online 2015 2
