“Present fairly” is the moral compass of financial reporting

The “present fairly” concept, remains at the epicenter of the preparation of AFS. It can aptly be described as an overarching concept which should inform all decisions made by the preparers of AFS. The following factors support such a view: the appropriateness of a particular FRS may be undeniable, yet there may well be difficult questions of judgment in the application of that FRS which affect, perhaps critically, the resultant quantification or appearance of items in the AFS. Such judgment is not exercised in a vacuum but in order to “present fairly." A departure from a relevant FRS may be "extremely rare" but the preparers of AFS will always have to ask themselves whether a departure is nonetheless, required in their particular circumstances. No doubt, in many cases that will be a very easy question to answer, but it must always be asked. Again, the question is not asked in a vacuum; it is answered in order to achieve “present fairly." It is possible that the treatment of a particular item could be justified by reference to the application of two different, but equally relevant, FRS. A choice will have to be made. Again, the question is not asked in a vacuum and is answered in order to “present fairly." The greater detail in FRS and the greater depth and length of the FRS setting process may give rise to severe timing difficulties in that economic and financial circumstances can change at great speed. The pace of innovation in financial instruments, in particular, is relentless. This may cause particular difficulties in areas of swift change since the precise circumstances may not be covered by a relevant FRS, or the instrument may be so new that there may be no standard at all. The question of how to present these transactions, whether by deciding upon the closest analogy or otherwise, can only be answered by reference to the need to “present fairly." Compliance with FRS is not an end in itself, but it is the means to an end – “present fairly." Hence the recognition in statute, so far as Companies Act is concerned of the “present fairly” override”.