Legal Regulation of Accounting

Question: Discuss about the Legal Regulation of Accounting. Answer: Introduction The notion of true and fair view can be termed as competing and not mutually exclusive standards when it comes to the purpose of financial reporting. The concept of true and fair value can be traced to the English law and provides support to the accounting, as well as auditing practice. The concept of true and fair value was adopted in Great Britain in the year 1844 when it was needed by the corporation to ensure that the balance sheet projects highlights a fair view. The British law used the concept of true and fair value for the first time and was translated as the true and correct view. The use of true and fair value in Britain assumed a special priority when it comes to developing a link between the internal accounting, as well as external accounting. It cannot be possible for the standards to answer every question leading to the attraction of a true and fair view. There have been uncountable debates relating to the importance of true and fair view. The concept can be well descri bed with the help of two approaches. One of them ascertains that it is a concept that is unnatural in nature, a defined standard, the validity of which surpass other rules of accounting and cannot be restricted (McGregor, 1992). The other method is viewed true and fair value as the concept that supports other rules of accounting. It is to be noted that the countries where it was tried to follow the true and fair value, much time was devoted to interpreting the concept. In Australia, the concept of TFV can be traced to the year 1890 at the time of Victorian Companies Act of 1890. As per the amendments of the Corporation Law 1989 that come from the Reform Program of Corporate Law Economic, the stature of the same has been diminished by the accounting standards of Australia. The Corporation Act 2001 is now the compliance making the body with a compulsion of the accounting standards. The TFV needs to be clarified and supported through the notes when necessary (ARC, 1992). Considering the dispute that is unresolved in nature over the concept and the authority-subordination, the concept of TFV is deemed to be the qualitative standard for the purpose of financial reporting. As per Pound Ryan (1985) provides a description of the other author explanation of true and fair value. The concept is a link to the example that is explained and must be viewed as a process of general understanding. Further, it is even termed as a term of technical nature and interpreted in various manners and established on the principles of accounting. When it comes to the accounting concept, true and fair view indicates that the financial statement should contain a material statement that projects the actual performance of the company. To be precise, true indicates that the financial statement adheres to reality and process of formal reporting framework like the conceptual framework and is free from any information that is unreal in nature that might mislead the report users (ARC, 1992). Fair implies the information in the financial statements does not contain any prejudice of personal capacity that might hurt the economic substance. The concept of TFV appeared to be unclear from the time of inception and many authors tried to define it. From the discussion and the implication it appeared to be clear that the TFV is incomplete without the generally accepted accounting practice that provided a pragmatic answer to the problem of valuation in accounting. However, from the very beginning, TFV has assumed a place of special importance in international accounting that implies more utilization of accounting rules (Alan, 1999). However, some opine the fact that TFV is vague in nature, uncertain and not directed appropriately. Moreover, a true and fair view is not synchronized with the prospects of accounting in creative terms and certainty in income. Hence, from the very beginning, there has been a difference of opinion when it comes to TFV. Beyond question, the application can be done in a subjective manner and made familiar in every situation. The historical purpose of TFV goes ahead of the technical rules of accounting. But, it needs to be noted that true and fair view is undefined by authority. There is no legal concept in the past that defines the idea of true and fair value. The TFV presence was alike the meaning of compliance with the facts, truth that refers to correspondence that is empirical in nature (Alan, 1999). However, in the real scenario, the value of truth does not correspondence to literal definition. The application of fair value is even present in the general accounting model that ascertains periodic profit, as well as capital. Hence, the history project that there is no standard rule to define the meaning of true and fair value (Woolf, 1986). TFV has served the accountants in the past. While the determination of depreciation is done, several methods are utilized such as declining balance method, multilevel method, basic method, etc. Therefore, in many cases, various options are accessible and reasonable in nature. However, the difference in method might leads to different computation and answers thereby hindering the financial performance of the company (Clarke Dean, 1992). When the formula is put by the accountant, the position of the company along with financial performance needs to be undertaken. In this scenario, the notion of true and fair value helped the accountant as it did not contain fixed rules and the requirement is to use the financial judgment to ensure a final decision (McGregor, 1992). The notion that true and fair value measurement is added to the professional identification is showcased in the financial report. However, in many cases, it has been observed that the setting for true and fair value is not obvious and that has added to the difficulties. This can be due to the fact that the notions of relevance and reliability of the entire accounting system are prone to changes. The extent to which the Australian regulatory environment for financial reporting supports the TFV Irrespective of the concern surrounding the concept of the true and fair value of the time of action by the Companies Act 1998, the idea has not only become a vital part of the financial reporting regimes but also the application has enhanced by leaps and bounds in the current times. In Australia, the status has been lessening by the accounting standards. By evaluating the interpretation of the concept in Australia, the fact regarding the support of Australian firms for TFV comes to the forefront (Nobes Parker, 1991). The reforms in the Australian accounting standards indicate that the dispute concerning the true fair view notion must be eliminated and that the credibility of the TFV must be restored. The legal concern that supports TFV is of the concern that the concept favor conservatism and has been dominate in the twentieth century. Referring to the case of London and General Bank(No.2) it came to the forefront that audit of statutory nature can be stated a securing to the shareholder's information of reliable nature in respect to the true and fair view of the company while the audit is being conducted (McGregor, 1991). The definition in orthodox terms of true and fair view was highlighted in the case of Newton v Birmingham Small Arms Ltd [11] where the court highlighted the use of balance sheet, to ascertain the financial status of the company. The Corporation Act of 2001 establishes that the financial report of Australian public companies should ensure compliance with the accounting standards and projects a true and fair view of the performance of the company . If any issue emerges between the two then it must be highlighted with the help of further information that must be incorporated in the notes as it appears in the account. The memorandum of explanatory nature that accompanies the 1998 amendments to the Corporation Law stated that the method can be established as consistent one with information that is apt for the performance evaluation, financial position and investment (Parker Nobes, 1991). Australian Accounting Standards needs the financial statements to contain discloses that are in tune with the concept of going concern that contains the risk of liquidity where the statements are in tune with the Corporation Act 2001. Australian Accounting Standards even needs the financial statements to contain certain disclosures that are important for the functioning of the company and resembles the principles of a going concern. The disclosures when included in the financial statements enhance the declaration made by the director in link to the financial statements projecting a true and fair view. However the balance sheet that adheres to historical cost convention are able to pictorize a true and fair view (Pierpont, 2001). This can be attributed to the case when the dollar amount against each asset class might not provide a real reflection of the organizations net worth especially in times of increasing prices (McGee, 1991). As per the scenario prevailing in Australia, it can be seen that the judgment varies from time to time and hence there is hardly any option left but to move to a financial reporting system that leads to a record of irrelevant nature. The true and fair view is undefined and hence there is a range of views that is acceptable in nature. However, the same cannot be treated as useless because there is a different manner of interpretation and the same can be used in various aspect. As per the ASIC, it is a problematic issue to stress on every board to enquire on a separate basis that the account that complies with the standards of accounting even projects a true and fair view (Evans, 1990). Auditor independence is an important aspect in Australia. True and fair view forms a major part of the accounting framework in Australia because independence is valuable till the point it leads to enhancement in financial accounting (Higson Blake, 1993). On the contrary, accountability can be pursued w hen it is bent on a particular course of action. However, if the true and fair view need is neglected then the reforms designed to enhance the level of independence and accountability will fail to attain the outcome that is desired. Therefore, it can be commented that directly or indirectly the Australian regulatory framework for financial reporting supports TFV to a major extent. On the other hand, the fundamental need of Australian corporate reporting is that the financial statement should be true and fair. The TFV hold strong meaning when it comes to the financial reporting system in Australia. It can be seen from various discussions that there has always been an attempt to uphold the TFV needs and to remove any technical uncertainty involved in it. The TFV are continuously used by the companys directors so that a justification can be provided if compliance is not done with the standards. Since the real context of true and fair view is not certain it is widely used as a means of an alternative accounting method. As per the Australian accounting guidelines and standards, there are no prescribed guidelines for the true and fair yet it is not neglected (Higson Blake, 1993). It assumes a place of special owing to the fact that it is essential to provide a true and fair view in terms of accounting practices. The TFV view indicates a standard classification, as well as grouping of the elements. Conclusion The financial reporting in Australia is well adapted and consistent application of generally accepted principles is witnessed. This ascertains the fact that the financial reporting in Australia is concerned and supportive regarding the TFV. However, it is the organization to use this concept and no actions can be taken against the director or the auditor if any cases of failure appear. Though the system of reporting is well supportive for the presence of TFV however, it is not compulsory when it comes to implementation. No prosecution has happened for invoking the true and fair view. Even the ASC is unable to take any action when it comes to the point of invoking. References Accounting Research Centre 1992, Who Audits Australia, University of Sydney Alan, K 1999, The True and fair view concept: evidence from Australia, Asian review of accounting, vol. 7, No. 1, p.96-111 Clarke, F.L Dean, G.W 1992, Chaos in the Counting House: Accounting Under Scrutiny, Australian Journal of Corporate Law, vol.2, no. 2, pp. 177-201 Evans, H 1990, True and Fair Revisited, Lloyds Maritime and Commercial Law Quarterly, pp. 255-267. 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