An analysis of the concept of true and fair view (TFV) :Is it applicable to Islamic accounting?

Abstract

The requirement of giving a 'True and Fair View' (TFV) was introduced in 1947 into the Companies Act in the UK and later disseminated to the Companies Acts of Commonwealth countries. The requirement is 'fairly presented' in the USA, which has a similar connotation to the 'true and fair' of the UK. In addition, the IAS, being highly influenced by the Anglo-American perspectives, has also adopted a similar requirement. Therefore, it is clear that the concept of TFV is significant in conventional accounting and forms the basis of establishing a framework for accounting regulation. However, since such a concept has only been referred to by AAOIFI and MASB, the question arises as to whether the concept is applicable to Islamic accounting. Or whether a different concept would be more appropriate to cater specifically for Islamic accounting, since as argued, Islamic accounting is different from the conventional accounting. While the Islamic standard setters are busy promulgating Islamic accounting standards, they seem to overlook the most fundamental element of financial reporting, which is a basis to develop the standards. A possible basis is the concept of giving a "True and Fair View" (TFV). Hence, it is important to determine whether TFV, which is basically a UK invention, is also applicable to Islamic accounting. The main aim of this paper is to critically examine the concept of TFV under the Islamic perspectives. The study tries to analyze the applicability of the TFV concept in Islamic accounting. It further explores the position and roles of TFV in the Islamic context. Finally, the paper will determine whether the TFV override is relevant and applicable in Islamic accounting. As the overall findings, the applicability of the concept of TFV is established by analyzing the history and regulation of TFV, the current scenario and the roles of the concept which includes the overriding principle. It is found that TFV concept is not contrary to Islamic Shari 'ah. Moreover, there are roles for the TFV and its override. Based on the findings, the study suggests that the Islamic standards setters retain the term as it is not against Islamic Shari'ah and to avoid any confusion to the users of financial statement. Therefore, the concept of TFV should remain in Islamic accounting until a better phrase which is better suited to the Islamic context is coined. Thus, the concept of TFV, at least for now, is actually applicable to Islamic accounting