The ‘True and Fair View’ Debate: A Study in the Legal Regulation of Accounting
| Published date | 01 November 1991 |
| Date | 01 November 1991 |
| DOI | http://doi.org/10.1111/j.1468-2230.1991.tb01855.x |
The ‘True and Fair View’ Debate:
A
Study
in
the
-
Legal Regulation
of
Accounting
Andrew McGee
*
The legal regulation of standards of professional competence is a matter fraught
with
difficulty. Few professions welcome attempts by lawyers to pass judgment
on
the competence
of
individual members of the profession
in
the performance
of
thcir duties. In most cases, though, there are recognisable professional standards,’
and the task of the lawyers is no more than defining clearly what those standards
are and then deciding whether they have been complied with
in
any given case.
Consideration of the legal regulation
of
accounting presents two particular difficulties,
which may help
to
explain
why
both the case law and the legal literature
in
this
area arc
so
scanty. The first is that relatively few lawyers have much understanding
of the principles of accounting, whilst the second is that the accountants themselves
have not succeeded
in
developing a satisfactory conceptual framework for the
subject,2
so
that
the definition of professional standards and objectives against
which to measure performance is made much more difficult.
It
must be. recognised
at
the outset that this difficulty may well be very attractive to accountants and auditors,
since one of its effects is
to
reduce their exposure
to
legal liability.
If
lawyers generally
do
not understand the practices of the profession, then the law can do little other
than accept the expert evidence of members of the profession as
to
what is acceptable
practice. Despite this, the task of preparing and auditing company accounts is subject
to
statutory regulation
in
the Companies Acts 1985 and 1989. This article looks
at that scheme of regulation from the point
of
view of its central feature, the
requirement ofa ‘true and fair view,’ and considers the status
of
that requirement.
A
major reason for undertaking this examination at the present time lies
in
the
belief that this area of the law is likely to become increasingly controversial
in
the
future. The great ‘merger boom’ of the
1980s
led to many contested takeovers,
in
which attention was often focused on the accounts of the target c0mpany.j This
in
turn
has caused the practices of accountants and auditors to come under closer
scrutiny. The resulting dissatisfaction with the accountancy profession’s attempts
to regulate its own affairs culminated
in
thc replacement of the Accounting Standards
Committee by the Financial Reporting Council and its subsidiary organ the
Accounting Standards Board pursuant
to
powers contained
in
the Companies Act
1989.
This change, which is more
fully
considered be1ow.J may bring about a
much greater legal involvement
in
the process of standard setting,s though
it
will
*Senior
I.ccturcr
in
Law. Livcrpool Utiivcrsity.
I
The
area
of
professioniil cotiipctence
in
which the law is best dcvclopcd is that of nicdicine; Iciiding
cases includc
Bolnrri
v
Frierri
Hospircrl
Mciriccgenierrr Corrirriitree
[
19571
2
All
ER
I
I8
and
Sidoitriy
v
Giverrtors
oJ’Roycrl
Berklcwr
Hospirn/
[
19851
AC
871.
I’herc is
iilso
consider;ible authority
in
relation
to
thc IcgiIl profession
-
Groorri
v
Crockker
[
19391
I
KB
194
is
ii
good
cxatnplc. Statements
of
Standard
Accounting Practice, which
iire
discussed throughout this article, perfortii
a
soiiiewhat diffcrcnt role.
Though
thc
first indications
from
the new Accounting Standards
Board
suggest
thitt
this debate itiity
bc
about
to
bc
revived
-
see
below,
text
to
notes
67-70.
Cases
arising out
of
this include
Cccl,rrro
/ridrrurric~.splc
v
Dickrricrrr
119901
I
All
ER
568,
Moc?imrg/rtori
(Jorricts)
Pqicru
Group
/.td
v
Hicks
Aridcrwt
&
Co
[
I991
1
I
All
ER
134
CA
and
Morgciri
Criiciblr
Co
pk
v
Hill
Smrrrd
Brrrrk
/,id
[
19911
I
All
ER
148
Ch.
Tlic
incrcasing level
of
European harmonization
of
accounting
standards
tilay
nlso
cotitributc
to
this
phcnomenon.
2
3
4
Tcxt
to
iiotes
67-70.
5
874
‘IYrt,
Modcrri
Lcr~t’
RC\~PIII
54:6
Novctiibcr
199
I
0026-796
I
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