Across the globe, including the Caribbean, the mandate for companies to produce "true and fair" accounts is not just a legal formality but a cornerstone of corporate integrity and accountability.
This requirement is enshrined in the corporate laws and regulations of several nations, ensuring that financial statements provide a genuine representation of a company's financial health to protect investors and the public interest.
Social contract of corporations and society
The concept of true and fair is deeply intertwined with the social contract between corporations and society.
Historically, the advent of limited liability companies spurred massive investments and value creation. In return, these entities are expected to provide transparent information that accurately reflects the value they generate and the costs incurred, including their environmental and social impacts. This exchange underpins the trust and legitimacy on which corporate entities operate.
Sustainability reporting
As global awareness of environmental and social issues has risen, so too has the scrutiny of corporate impacts on these fronts.
Traditional financial reporting frameworks are being expanded to include sustainability reporting standards, which aim to provide stakeholders with a clearer picture of a company's non-financial impacts. These emerging standards compel companies to disclose how environmental and social changes affect their operations and, conversely, how their operations impact the world around them.
Despite these advancements in reporting standards, a significant gap remains in how companies account for their broader impacts.
As my colleague Jeremy Nicholls, an accounting and social impact expert, points out, if such non-financial information is material to stakeholders, its omission from financial accounts could challenge the veracity of the true and fair claim. For instance, the luxury group Kering has begun to monetise its environmental impacts, reflecting these in its financial statements to provide a more holistic view of its corporate value and values.
Practical guidance for true and fair accounts
The Financial Reporting Council (FRC) offers specific guidance to directors on achieving true and fair accounts.
It emphasises that compliance with accounting standards alone does not automatically equate to true and fair accounts. Directors must exercise judgment and ensure that significant information is neither obscured by immaterial data nor omitted entirely. They are encouraged to stand back and assess whether the overall accounts provide a true and fair view, integrating sustainability issues where relevant.
Nicholls provides actionable advice for directors aiming to bridge the gap in sustainability reporting:
Educate yourself on true and fair requirements
Start by thoroughly reading the FRC's guidance on the true and fair concept. Dive deeper by exploring research on the intersection between sustainability and financial reporting, such as the Capitals Coalition's report on disclosing impacts
