Financial statements are meant to fairly present the financial position, financial performance and cash flows of an entity. 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 IASB’s Framework for the Preparation and Presentation of Financial Statements. The application of IFRS, with additional disclosure when necessary, is presumed to result in financial statements that achieve a fair presentation (IAS 1:15). Insight – True and fair Need help? Get subscribed!To subscribe to this content, simply call 0800 231 5199 We can create a package that’s catered to your individual needs. Or book a demo to see this product in action. 7 For the purposes of this Auditing Standard, the following terms have the meanings attributed below: 7(a) General purpose financial report – a financial report prepared in accordance with a general purpose framework. 7(b) General purpose framework – A financial reporting framework designed to meet the common financial information needs of a wide range of users. The financial reporting framework may be a fair presentation framework or a compliance framework. The term “fair presentation framework” is used to refer to a financial reporting framework that requires compliance with the requirements of the framework and:
The term “compliance framework” is used to refer to a financial reporting framework that requires compliance with the requirements of the framework, but does not contain the acknowledgements in (i) or (ii) above.[6] 7(c) Unmodified opinion – The opinion expressed by the auditor when the auditor concludes that the financial report is prepared, in all material respects, in accordance with the applicable financial reporting framework.[7] Aus 8.1 Financial Report means, for the purpose of the Corporations Act 2001,[*] financial statements for the year or the half‑year and notes to the financial statements, and the directors’ declaration about the statements and notes. Aus 8.2 Financial Report means, for purposes other than the Corporations Act 2001, a complete set of financial statements,[#] and an assertion statement by those responsible for the financial report. Aus 9.1 Reference to “Australian Accounting Standards” in this Auditing Standard means the Australian Accounting Standards issued by the Australian Accounting Standards Board, and reference to “International Financial Reporting Standards” (IFRSs), means the International Financial Reporting Standards issued by the International Accounting Standards Board. 6 See ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards, paragraph 13(a). 7 See paragraphs 25–26 which deal with the phrases used to express this opinion in the case of a fair presentation framework and a compliance framework respectively. 8 [Deleted by the AUASB. Refer Aus 8.1] #_1 See ASA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with Australian Auditing Standards, paragraph 13(f) sets out the content of a financial report. Financial statements are prepared to fulfill information needs of its users. In order to cater the needs at best a certain financial reporting framework is used considering the jurisdiction in which the entity and/or its users exist. For example two of the popular financial reporting framework are IFRSs and US GAAPs. However, talking about the nature of reporting frameworks, we can
have to types of framework: Fair presentation framework is such a framework that requires compliance with the provisions of framework but in addition that it acknowledges that: Compliance framework, as the name suggests, requires compliance with the provisions of the framework i.e. strict obedience of instructions is required and the ones preparing financial statements have no choice but to follow the requirements of framework. Compliance
framework does not allow any room or flexibility as given under fair presentation framework. In simple words, although fair presentation framework requires compliance but it still allows for the alternatives that can achieve better presentation of financial statements resulting in more relevant and reliable financial statements even if management has to make additions or go against the requirements of framework. Whereas, in compliance framework no such leverage is given and under this
framework complete compliance is required under any condition. While preparing financial statements those who are responsible to prepare financial statements needs to inform users regarding the financial reporting framework used and also in case of any departure, if fair presentation framework is used, disclosures shall be made with such prominence as required so that users can understand and also provide the reasons why departure was necessary and how the alternative treatment adopted by
the management resulted in more relevant and reliable financial statements. In audit engagements, auditor has to consider the framework used to prepare financial statements as it has bearing on the audit engagement down to the level of audit report. Is IFRS a fair presentation framework or compliance framework?In virtually all circumstances, a fair presentation is achieved by compliance with applicable IFRS. The following is also required (IAS 1:17): to select and apply accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (IAS 8).
What is the meaning of fair presentation and compliance for financial reporting?In the new. IAS 1, the meaning of 'fair presentation' is explained: 'fair presentation requires the faithful representation' of effects of transactions in accordance with definitions and recognition criteria set out in the Framework. Compliance with IFRSs results, 'in virtually all circumstances' in 'fair presentation' ...
Does an audit ensure a fair presentation of a company's financial report?Role of audit
The benefit of an audit is that it provides assurance that management has presented a 'true and fair' view of a company's financial performance and position.
What is the framework of financial reporting?An applicable financial reporting framework is the set of rules used as guidelines in the preparation of financial statements. The framework used is typically based on the type of business and where it is located, as well as the applicable laws.
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