IDEAS home Printed from https://ideas.repec.org/a/taf/acctbr/v33y2003i1p3-17.html
   My bibliography  Save this article

On economic reality, representational faithfulness and the ‘true and fair override’

Author

Listed:
  • David Alexander
  • Simon Archer

Abstract

The concept of ‘representational faithfulness’ is related to notions such as financial statements ‘giving a true and fair view’ or ‘presenting fairly’, which form a key part of auditors' opinion statements, and to ‘creative accounting’. These considerations lead to some deep conceptual issues concerning the relationship between financial reporting and its objects. We argue that it is mistaken to consider this relationship as one of ‘correspondence’. It is a more subtle, reflexive relationship which needs to be explicated if both the power and the fragility of accounting and financial reporting are to be properly understood. A related issue with which accounting standard-setters are confronted is exemplified in IAS 1, namely the possibility that ‘compliance with a Standard would be misleading, and…therefore departure from a requirement is necessary to achieve a fair presentation’ (IASC, 1997 para. 13). This issue is sometimes referred to as ‘the true and fair override’ (TFO), whereby a guiding principle, or higher-order rule (meta-rule), is invoked to justify non-application of a lower-order rule. The issue of the TFO is related to that of representational faithfulness (RF) mentioned above because the standard justification given for the TFO implies ‘correspondence’ between financial reporting and what it seeks to represent. We argue that if the characterisation of the relationship between financial reporting and its objects as one of ‘correspondence’ is rejected, justification of the TFO is problematic. In other words, while such a meta-rule has a key role to play as a guiding principle, to use it as an ‘override’ raises serious philosophical problems, as well as potential problems of preparer opportunism.

Suggested Citation

  • David Alexander & Simon Archer, 2003. "On economic reality, representational faithfulness and the ‘true and fair override’," Accounting and Business Research, Taylor & Francis Journals, vol. 33(1), pages 3-17.
    • Handle: RePEc:taf:acctbr:v:33:y:2003:i:1:p:3-17
    DOI: 10.1080/00014788.2003.9729628
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00014788.2003.9729628
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00014788.2003.9729628?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Shapiro, Brian P., 1997. "Objectivity, relativism, and truth in external financial reporting: What's really at stake in the disputes?," Accounting, Organizations and Society, Elsevier, vol. 22(2), pages 165-185, February.
    2. Cushing, Barry E., 1999. "Economic analysis of accountants' ethical standards: The case of audit opinion shopping," Journal of Accounting and Public Policy, Elsevier, vol. 18(4-5), pages 339-363.
    3. Justice Arden, 1997. "True and fair view: a European perspective," European Accounting Review, Taylor & Francis Journals, vol. 6(4), pages 675-679.
    4. Christopher Nobes, 2000. "Is true and fair of over-riding importance?: a comment on Alexander's benchmark," Accounting and Business Research, Taylor & Francis Journals, vol. 30(4), pages 307-312.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wally Smieliauskas & Kathryn Bewley & Ulfert Gronewold & Ulrich Menzefricke, 2018. "Misleading Forecasts in Accounting Estimates: A Form of Ethical Blindness in Accounting Standards?," Journal of Business Ethics, Springer, vol. 152(2), pages 437-457, October.
    2. Claudia-Cătălina Ciocan, 2019. "Analysis of the Relation between Conservatism and the Amount of Dividends Payable to Shareholders. The Case of Romanian Listed Companies," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(1), pages 570-579, August.
    3. Stenka, Renata & Jaworska, Sylvia, 2019. "The use of made-up users," Accounting, Organizations and Society, Elsevier, vol. 78(C).
    4. Anne Marie Garvey & Laura Parte & Bridget McNally & José Antonio Gonzalo-Angulo, 2021. "True and Fair Override: Accounting Expert Opinions, Explanations from Behavioural Theories, and Discussions for Sustainability Accounting," Sustainability, MDPI, vol. 13(4), pages 1-23, February.
    5. Ala, Alessandro S. & Lapsley, Irvine, 2019. "Accounting for crime in the neoliberal world," The British Accounting Review, Elsevier, vol. 51(5).
    6. Maruszewska Ewa Wanda & Tuszkiewicz Maciej Andrzej, 2024. "Boundaries of management performance measures (MPMs) disclosed in primary financial statements prepared in accordance with new standard planned to supersede IAS 1," Central European Economic Journal, Sciendo, vol. 11(58), pages 1-16, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lisa Evans, 2003. "The true and fair view and the ‘fair presentation’ override of IAS 1," Accounting and Business Research, Taylor & Francis Journals, vol. 33(4), pages 311-325.
    2. Hamilton, Gavin & Ó hÓgartaigh, Ciarán, 2009. "The Third Policeman: ‘The true and fair view’, language and the habitus of accounting," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 20(8), pages 910-920.
    3. David Alexander, 2001. "The over-riding importance of internationalism: a reply to Nobes," Accounting and Business Research, Taylor & Francis Journals, vol. 31(2), pages 145-149.
    4. Bayou, Mohamed E. & Reinstein, Alan & Williams, Paul F., 2011. "To tell the truth: A discussion of issues concerning truth and ethics in accounting," Accounting, Organizations and Society, Elsevier, vol. 36(2), pages 109-124, February.
    5. Shapiro, B. P., 1998. "Toward a normative model of rational argumentation for critical accounting discussions," Accounting, Organizations and Society, Elsevier, vol. 23(7), pages 641-663, October.
    6. Juan Aparicio & Joaquín Sánchez-Soriano, 2008. "Depreciation games," Annals of Operations Research, Springer, vol. 158(1), pages 205-218, February.
    7. Barker, Richard & Schulte, Sebastian, 2017. "Representing the market perspective: Fair value measurement for non-financial assets," Accounting, Organizations and Society, Elsevier, vol. 56(C), pages 55-67.
    8. Mouck, Tom, 2004. "Institutional reality, financial reporting and the rules of the game," Accounting, Organizations and Society, Elsevier, vol. 29(5-6), pages 525-541.
    9. Noël, Christine & Ayayi, Ayi Gavriel & Blum, Véronique, 2010. "The European Union's accounting policy analyzed from an ethical perspective: The case of petroleum resources, prospecting and evaluation," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 21(4), pages 329-341.
    10. Erb, Carsten & Pelger, Christoph, 2015. "“Twisting words”? A study of the construction and reconstruction of reliability in financial reporting standard-setting," Accounting, Organizations and Society, Elsevier, vol. 40(C), pages 13-40.
    11. Gundelach, Henrik & Nielsen, Bo Bernhard, 2023. "Subsidiary performance measurement in international business research: A systematic review and future directions," Journal of Business Research, Elsevier, vol. 169(C).
    12. Corbella, Silvano & Florio, Cristina, 2010. "Issues arising for accounting harmonization: The case of stock options in Italy," Accounting forum, Elsevier, vol. 34(3), pages 184-195.
    13. Murphy, Tim & O’Connell, Vincent & Ó hÓgartaigh, Ciarán, 2013. "Discourses surrounding the evolution of the IASB/FASB Conceptual Framework: What they reveal about the “living law” of accounting," Accounting, Organizations and Society, Elsevier, vol. 38(1), pages 72-91.
    14. Lehman, Glen, 2010. "Interpretive accounting research," Accounting forum, Elsevier, vol. 34(3), pages 231-235.
    15. Davison, Jane, 2011. "Paratextual framing of the annual report: Liminal literary conventions and visual devices," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 22(2), pages 118-134.
    16. Lehman, Glen, 2010. "Perspectives on accounting, commonalities & the public sphere," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 21(8), pages 724-738.
    17. Charles J. Coates & Robert E. Florence & Kristi L. Kral, 2002. "Financial Statement Audits,a Game of Chicken?," Journal of Business Ethics, Springer, vol. 41(1), pages 1-11, November.
    18. Davison, Jane, 2010. "[In]visible [in]tangibles: Visual portraits of the business élite," Accounting, Organizations and Society, Elsevier, vol. 35(2), pages 165-183, February.
    19. Lehman, Glen, 2013. "Critical reflections on Laughlin's middle range research approach: Language not mysterious?," CRITICAL PERSPECTIVES ON ACCOUNTING, Elsevier, vol. 24(3), pages 211-224.
    20. Luft, Joan & Shields, Michael D., 2014. "Subjectivity in developing and validating causal explanations in positivist accounting research," Accounting, Organizations and Society, Elsevier, vol. 39(7), pages 550-558.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:acctbr:v:33:y:2003:i:1:p:3-17. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RABR20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.