When the U.K. Financial Reporting Council affirmed that the requirement that audited financial statements give a true and fair account of a company’s operations remains of fundamental importance under both U.K. GAAP and IFRS and the true and fair principle can override the mechanistic application of a particular accounting standard it was also affirming that US GAAP and IFRS have this in common. The analogous U.S. principle is that financial statements must fairly present the company’s financial picture. What both of these principles convey is that there is something higher than the application of accounting standards in deciding if financial statement present an accurate picture of the company. In other words, you cam mechanically comply with accounting standards and still fail to present an accurate picture of a company's financial condition.
Another similarity is that the true and fair principle and the fairly present principle are both judicially-created, Circuit Judge Friendly in the US and Lord Hoffman and Dame Arden in the UK, outside of the realm of the accounting standard setters. True and fair is all important, said the FRC, such that where directors and auditors do not believe that following a particular accounting policy will give a true and fair view they are legally required to adopt a more appropriate policy, even if this requires a departure from a particular accounting standard.
To be sure, in the vast majority of cases a true and fair view will be achieved by compliance with accounting standards and by additional disclosure to fully explain an issue, noted the FRC. However, where compliance with an accounting standard would result in accounts being so misleading that they would conflict with the objectives of financial statements, the standard should be overridden.