True and fair override 'alive and kicking'

TRUE AND FAIR override still exists and can be used in exceptional circumstances, the Accounting Standards Board has insisted.

Some stakeholders were worried that the principle of true and fair is missing from International Financial Reporting Standards, potentially resulting in rules-compliant accounts that misrepresent the nature of a transaction.

Chairman Roger Marshall (pictured) said that the ASB's new four-page paper on the issue is the product of "several months' work and a lot of consultation".

"Evidence sessions at the House of Lords audit inquiry clearly demonstrated that people are still worried about true and fair, but they shouldn't be," he said.

UK GAAP contained a separate standard requiring accounts to reflect the true or "economic" nature of a transaction rather than simply its legal form. For example, when accounting for a contract with an option on it, ignoring the option in favour of a strict legal definiton would result in the "wrong answer". In such circumstances, a true and fair override might be necessary. However, IFRS does not include such a clause, which has led to stakeholder concern.

Marshall said that the option "was very occasionally used under UK GAAP and may be very occasionally used under IFRS". National Express's joint pension scheme is one such example and more could present themselves as financial services evolve.

The ASB said that the new paper will draw together the guidelines on true and fair reporting and remind preparers and auditors of accounts that the requirement "remains of fundamental importance in both UK GAAP and IFRS".