Fred 4

A number of cases emerged in the early 1980s where the extent of off balance sheet finance found to exist in certain listed companies provoked criticism of the accounting profession and a degree of public concern. In response, the Institute of Chartered Accountants in England and Wales (ICAEW) issued Technical Release (TR) 603 in December 1985 as a preliminary document for discussion. It detailed certain points to be considered by preparers of financial statements in examining off balance sheet transactions: ‘1. In financial statements which are intended to give a true and fair view the economic substance of such transactions should be considered rather than their mere legal form when determining their true nature and thus the appropriate accounting treatment. Where items are included in the accounts on the basis of the substance of the transactions concerned and this is different from their legal form, the notes to the accounts should disclose the legal form of those transactions and the amounts of the items involved. 2. In the rare circumstances where accounting for a material transaction on the basis of its substance rather than its legal form would not comply with the requirements of the Companies Act, adequate disclosure should be made in order to provide a true and fair view, possibly by presenting separate proforma accounts prepared on the basis of the economic substance of the transactions.’