Fairness in Financial Reporting

Public companies in most countries are legally required to publish annual accounts, and these are widely used for making financial decisions. To prevent users of accounts being misled into making disastrous decisions, all major Western countries have introduced controls on the ways accounts are presented. By British and EEC law a company's accounts must give a ‘true and fair view’ of its financial state. It has become widely accepted that if accounts are prepared according to standards drawn up by the accounting profession itself, then they can be considered as being ‘true and fair’. In this paper it is argued that such an interpretation of ‘true and fair’ gives inadequate protection to users. How users' interests might be better protected is discussed. Finally, it is suggested that Rawls’ notion of a ‘veil of ignorance’ could be used to ensure that in the preparation of accounts equal regard is paid to the interests of different types of user.