What is the concept of ‘true and fair’ in auditing?

Introduction

Audit refers to an independent examination of the financial information of any entity to express an opinion on the financial statements of the entity.  An audit is conducted to ensure that the financial statements of the entity whose books of accounts are audited reflect a true and fair view of the affairs of the entity.

In audit reports, an auditor uses the term ‘true and fair’ is used to express that the financial statements are free from any kind of material misstatement and depict a correct financial image of the entity.

The term holds great significance in the audit reports of entities and auditors have to use this term carefully.

Meaning of ‘True’ and ‘Fair’

The term consists of two words, ‘True’ and ‘Fair’. Let’s understand what each of these words actually means.

True

The word ‘true’ suggests that the auditor, after examining the financial statements, has found no material misstatement whether due to error or fraud. The financial information depicted by the financial statements and the underlying accounting records is correct. The preparation and presentation of the financial statements are in accordance with the accounting standards applicable to the entity.

Fair

The word ‘fair’ means the financial information presented through the financial statement does not have an element of bias or sugar coating. There is a faithful presentation of financial information and the amounts at which the assets and liabilities, income and expenses and equity are shown is justified.