TRUE AND FAIR VIEW :

The main object of audit is to find out whether the financial statements prepared by a company show the true
and fair view of the financial state of affairs of a company and if not then in what respect they are not showing. The accounts are said to be true and fair:

1. The books of account have recorded all the business transaction correctly.

2. The books of account have been prepared according to the accepted principles of accountancy and have followed accounting standards issued by different regulatory bodies.

3. There are no errors and frauds present in the books of account.

4. The financial statements that have been prepared by the company are in conformity with the books of accounts and all mandatory provisions of companies Act and other relevant laws have been followed:

5. The profit and loss shown in the profit and loss account shows the true and fair results of entity’s operations and the value of assets and liabilities appears in the balance sheet is showing the correct financial picture.

6. The books of accounts must disclose all material facts regarding revenue, expenses, assets and liabilities.

Material means important and essential. The disclosure of important matters in the accounts helps the users in taking business decisions. There should be neither suppression of vital facts nor mis-statements.

What constitutes true and fair is not defined under any law. In order to show a true and fair view the auditor should ensure that:

1. The final accounts (Trading and Profit and loss Account and Balance Sheet) agree with the books of accounts.

2. The closing stock is physically verified and valued properly.

3. Intangible assets like goodwill, patents, preliminary expenses or other deferred revenue expenses are valued and written off properly.

4. Expenses/income of Capital nature is not treated as revenue and vice versa.

5. Contingent liabilities are not treated as actual liabilities and vice versa

6. Provision is made for all known losses and liabilities

7. Transactions are recorded on accrual basis, i.e. outstanding expenses, prepaid expenses, income accrued and advance income is recorded properly

8. The exceptional or non-recurring transactions are disclosed separately in the accounts