True and fair view - what it means

Financial statements are required to show a true and fair view. But what do the words "true and fair view" mean?

There is no definition in the Singapore Companies Act. Neither are the words defined in the United Kingdom's companies legislation. The relevant accounting standards bodies have also not defined these words.

Queen's Counsels Mary Arden and Leonard Hoffman (as he then was) in England (who are senior well respected lawyers) stated that the words require that the accounts will not be true and fair unless the information in them is sufficient both in quantity and quality to satisfy the reasonable expectations of readers to whom the accounts are addressed. Unfortunately, these words do not assist in any meaningful way.

In the English case of Lloyd Cheyham v Littlejohn, the judge stated that compliance with the rules of the relevant accounting standards authority is strong evidence as to the proper standard to be adopted.

This case was referred to in the local case of JSI Shipping (S) Pte Ltd v Teofoongwonglcloong (a firm) [2007] 4 SLR 460; [2007] SGCA 40

(for a discussion of this case from the viewpoint of the law of negligence, please see http://professionalnegligencesg.blogspot.com/2009/04/gaelic-inns-jsi-shipping-2-contributory.html)

True and fair views in the accounts and financial statement

A company's financial statements are required to show a true and fair view. The company's external auditors are also supposed to express an opinion as to whether the accounts do in fact show such a view. If the accounts appear to be in order, then an unqualified opinion is given.

If the accounts do not show a true and fair view, the auditors are supposed to render an adverse opinion. This is used where the auditors are reasonably sure that the accounts are incorrect. Where the information and documents available are insufficient for the auditors to ascertain whether the accounts are correct or incorrect, then the auditors are required to express an disclaimer opinion.

To protect the auditors from defamation lawsuits in relation to such opinions, section 208 of the Companies Act provides them with qualified privilege. This means that unless there is malice or some improper motive of the auditors in making incorrect statements, the auditors will win any defamation lawsuits against them.

The Informatics affair 2

Continued from previous post.


Some of Infomatics' top executives were charged in court with the creative accounting practices used by IGSPL (Informatics Group Singapore Pte Ltd). They were Wong Tai and Ong Boon Kheng.

Wong Tai, Chairman and non-executive director of IHL Ltd, was charged under the Securities and Futures Act with 2 charges of making false statements by misstating the company's profits in 2 quarterly income statements by by $4.18 million and $0.84 million. He pleaded guilty to 2 charges, with 2 others to be taken into consideration.

The District Court considering facts that he was a first time offender and was not personally involved in the
preparation of the financial statements fined him $120,000 on each of the charges.

Ong Boon Kheng, Chief Executive Officer of Informatics at the relevant time, claimed trial. He was charged with 4 counts, 3 of which related to false accounting in the first, second and third quarters 2003 financial statements of the company while the 4th related to a statement made to the Singapore Exchange, SGX.

Tan Cheng Han, specialist district judge (and also Dean of the Faculty of Law, National University of Singapore) sentenced him to a total fine of $445,000.

Ong was also ordered to pay prosecution costs of $45,400 for the 28 day trial.

The sentences were upheld by High Court judge Tay Yong Kwang on appeal.

The above convictions are probably sufficient to disqualify the above 2 directors from acting as directors under the Companies Act.