Accounts should give True and fair view of your business
The directors of a company are required to prepare Accounts for each financial year of the company.
The accounts should include:
(a) a balance sheet as at the last day of the financial year; and
(b) a profit and loss account for the year or accounting period.
(c) Notes to the accounts
The balance sheet must give a true and fair view* of the state of affairs of the company as at the end of the financial year; and
The profit and loss account must give a true and fair view of the profit or loss of the company for the financial year.
The directors of a company must regard to the substance of the reported transaction or arrangement, in accordance with GAAP (generally accepted accounting principles or practice).
It is necessary for the directors to determine the substance of a transaction and identify whether the transaction has given rise to new assets or liabilities for the company and whether it has changed the entity’s existing assets or liabilities.
Directors should also provide additional disclosures when compliance with an accounting standard is insufficient to present a true and fair view.
*According to Financial Reporting Council:
The ‘true and fair’ concept has been a part of English law and central to accounting and auditing practice in the UK for many decades. There has been no statutory definition of ‘true and fair’. The most authoritative statements as to the meaning of ‘true and fair’ have been legal opinions written by Lord Hoffmann and Dame Mary Arden in 1983 and 1984 and by Dame Mary Arden in 1993 (‘the Opinions’). Since those Opinions were written, there have been some significant changes in accounting standards and company law which have led some to question whether the views expressed in those Opinions remain applicable.
In these circumstances, the FRC concluded that it would be helpful to its preparers, auditors and users of financial statements if it commissioned a further legal opinion to ascertain whether the approach to ‘true and fair’ taken in the Opinions requires to be revised. The FRC instructed Martin Moore QC and his Opinion is now published on the FRC website.