What a true and fair view means

Q: What does standing back look like in practice?

Illustration only. A property company's profit of £900,000 includes an £800,000 fair value gain on investment property, which FRS 102 paragraph 16.7 requires to go through profit or loss. The treatment complies with the standard and is not misleading, so there is no case for an override. But a reader could mistake the gain for trading profit. Under section 396(4) the directors add a note splitting operating results from the unrealised gain. That is the true and fair requirement working as intended: extra information, not a different rule.

A true and fair view is the overriding legal standard for UK company accounts: directors must not approve accounts unless they are satisfied the accounts give one, and auditors must say whether they do. The Companies Act 2006 does not define the phrase, but legal opinions published by the FRC and the FRC’s own guidance treat it as a matter of professional judgement that is normally met by following accounting standards, adding disclosure where needed. Only in special circumstances may directors depart from a rule, and they must then explain the departure, the reasons and its effect.

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Where does the requirement come from?

Three provisions of the Companies Act 2006 do the work. Section 393(1) says directors must not approve accounts unless they are satisfied that they give a true and fair view of the assets, liabilities, financial position and profit or loss of the company, or for group accounts of the undertakings in the consolidation as a whole so far as concerns members. Section 396(2) requires Companies Act individual accounts to give a true and fair view of the state of affairs at the year end and of the profit or loss for the year, and section 404(2) does the same for group accounts.

Auditors are bound in too. Section 393(2) requires the auditor to have regard to the directors’ duty, and section 495(3)(a) requires the audit report to state clearly whether, in the auditor’s opinion, the accounts give a true and fair view. FRS 102 paragraph 3.2 repeats the requirement as a principle of the standard itself.

Is there a legal definition?

No. The FRC states plainly that there has been no statutory definition of true and fair. It describes the most authoritative interpretations as the legal opinions of Lord Hoffmann and Dame Mary Arden in 1983 and 1984, and of Dame Mary Arden in 1993. The FRC later obtained opinions from Martin Moore QC in 2008 and 2013, which endorsed that earlier analysis and confirmed that true and fair remains central to UK financial statements whether prepared under UK or international standards.

The FRC’s position paper True and Fair (June 2014) draws the practical conclusions. Fair presentation under IFRS is equivalent to a true and fair view. The concept is not a separate add on to accounting standards: the whole purpose of standards is to reflect economic reality and so give a true and fair view. The FRC’s July 2011 paper quotes Martin Moore’s warning that preparing accounts cannot be reduced to a mechanistic process of following the standards without objective professional judgement.

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How does it work alongside accounting standards?

FRS 102 paragraph 3.2(a) sets a presumption: applying the standard, with additional disclosure when necessary, is presumed to give a true and fair view. The FRC expects that in the vast majority of cases compliance with standards will achieve that. But compliance is not automatically enough. The 2014 paper lists where judgement applies, including:

choosing between permitted accounting policies so they suit the company’s circumstances;
developing policies for items standards do not cover, without relying on a treatment designed for a different kind of item;
making valuation judgements, and not using detailed rules as an excuse for poor accounting;
deciding what is and is not material;
giving disclosures not specifically required, and not burying significant information under immaterial detail; and
standing back at the end to check that the accounts as a whole give a true and fair view.

The paper also says accounts would struggle to be true and fair if legal form overrode substance, and that prudence still underlies accounting, while excessive provisions and hidden reserves are not allowed. For the conceptual basis in FRS 102, see FRS 102 concepts and pervasive principles.

What is the difference between adding information and overriding a rule?

The Act has two separate steps. Section 396(4) says that if complying with the regulations and other provisions of the Act would not be sufficient to give a true and fair view, the necessary additional information must be given in the accounts or notes. This is the normal remedy. The FRC’s 2014 paper says that where a standard clearly addresses an issue but its requirements do not fully explain it, the solution is normally additional disclosure, giving adjusted performance measures as an example.

Section 396(5) is the override. If in special circumstances compliance with any of those provisions is inconsistent with the requirement to give a true and fair view, the directors must depart from that provision to the extent necessary. Section 404(5) applies the same rule to group accounts. FRS 102 paragraph 3.4 extends the idea to requirements of the standard itself: in special circumstances, where management concludes that compliance would be inconsistent with a true and fair view, the entity departs from the requirement in the way paragraph 3.5 sets out.

When can the override actually be used?

Rarely, and never just because the directors prefer another answer. The FRC’s guidance makes these points:

Disagreement is not enough. Disagreeing with a standard does not on its own justify departing from it.
Circumstances the standard did not contemplate. Departures are more likely to be justified where the precise circumstances were not considered when the standard was written.
The test is serious. Paragraph 3.5(c) requires the company to explain why the normal treatment would be so misleading that it would conflict with the objective of financial statements in Section 2.
When it applies, it is mandatory. Where directors and auditors do not believe a policy gives a true and fair view, they are legally required to adopt a more appropriate one, and an inappropriate policy cannot be cured by disclosure.
Regulators respect reasoned judgements. Where a company departs from a standard and properly explains the reasons and effects, the FRC says its Financial Reporting Review Panel would be reluctant to substitute its own judgement unless the board has not acted reasonably. The 2014 paper notes that HSBC and National Express have used the override under IFRS.

Small companies have an additional route for departing from the accounting principles in Part 2 of Schedule 1 to SI 2008/409: paragraph 10(2) allows departure where there are special reasons, with particulars, reasons and effect disclosed. FRS 102 repeats this in paragraph 1AC.10 and says it is only expected in special circumstances. The small company angle is covered in FRS 102 Section 1A.

What must be disclosed when the override is used?

Section 396(5) requires particulars of the departure, the reasons for it and its effect to be given in a note. FRS 102 paragraph 3.5 is more detailed. The note must say:

that management has concluded the accounts give a true and fair view;
that the company has complied with FRS 102 or the legislation except for a particular requirement, departed from to the extent necessary; and
the nature and effect of the departure, the treatment that would otherwise be required, why that treatment would be so misleading as to conflict with the objective of financial statements, and the treatment adopted.

Under paragraph 3.6, if a departure in an earlier period still affects amounts in the current accounts, the paragraph 3.5(c) disclosures must be repeated. A large company must also state under paragraph 45 of Schedule 1 to SI 2008/410 whether the accounts comply with applicable accounting standards, with particulars and reasons for any material departure.

How does it apply to micro entities?

Differently. Section 396(2A) presumes that the micro entity minimum accounting items give the required true and fair view, and section 396(6) switches off the additional information and override rules for those items. Section 393(1A) tells directors to disregard accounting standard provisions requiring information beyond the minimum items, but to have regard to standards for any extra item they choose to include. Section 495(3A) gives auditors the same instructions. See FRS 105 micro entity accounts.

What does standing back look like in practice?

Illustration only. A property company’s profit of £900,000 includes an £800,000 fair value gain on investment property, which FRS 102 paragraph 16.7 requires to go through profit or loss. The treatment complies with the standard and is not misleading, so there is no case for an override. But a reader could mistake the gain for trading profit. Under section 396(4) the directors add a note splitting operating results from the unrealised gain. That is the true and fair requirement working as intended: extra information, not a different rule.

What mistakes come up?

Treating the phrase as a formality in the audit report rather than a judgement the directors make when they approve the accounts.
Using the override to avoid an unwelcome result, without the paragraph 3.5 explanation.
Qualifying the compliance statement instead of properly disclosing a departure; see writing the accounting policies note.
Assuming that following every disclosure checklist item guarantees a true and fair view.
Forgetting to repeat the disclosure in later years under paragraph 3.6.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.