True and Fair Presentation
In recent months, the IFRS, or International Financial Reporting System, has come under scrutiny in the UK. In a nutshell, it is believed that businesses are not providing “true and fair” statements regarding their earnings and expenditures following their registration, something that could have a serious impact on the overall global economy.
Types of Documentation
In the UK, there have been fundamental laws in place to govern the provisioning of documentation that all businesses must provide for more than 50 years following their registration. If the company is providing a balance sheet, then this information is supposed to be true and current as of the date that the company releases it. If the business is providing an account of losses and profits, then these are to be clearly defined within a particular time-frame whether quarterly, semi-annually or annually.
These days, there is something of a clash between these laws in the UK and the laws that govern international trading. The international accounting standards take things a bit further, and it is thought that the IFRS that is mandated for use by businesses in the UK directly following their formation is not in legal compliance with the laws that are used in the rest of Europe. Primarily, the Companies Act of 2006 is what many businesses rely upon when it comes to accounting, but UK businesses are falling behind.
The Companies Act of 2006
The Companies Act of 2006 simply states that directors may not approve their company’s documentation, whether it is a balance sheet or an account of losses and profits, unless he or she is absolutely sure that the documentation provides a “true and fair” assessment of the company’s position during a particular time-frame. This law also requires those individuals who audit businesses after their legal registration to certify whether, in their opinion, everything that is presented in these documents accurately represents the company’s status as far as spending, losses, profits, and other financial matters.
Accuracy of International Accounting Standards
There is some speculation that since the documentation laws in the UK are lax when compared to the laws set forth in the rest of Europe, the reports that are coming from businesses after their registration are not providing true and fair information. There is also some thought that the government itself has departed from some of its own laws in order to “fix the books” and cause the reporting to be less than accurate. Whether there is truthfulness in this is still unknown at this point, however, and this could have serious consequences on the economy of the UK and other countries around the world as a result.
Whether or not the UK government will come forth with a plan to put a stop to the speculation and create a standardized way to report financial gains, losses, spending and more is also still an unknown. However, after all of the bailouts back in 2008, it can only be hoped that they will. The registration of new, successful businesses depends on it.