All about Accounting Truth
Hosper framed truth in three different ways:
- Truth as correspondence which means proposition is true if it corresponds to a fact,
- Truth as coherence when the proposition is true because it is coherent with other propositions, and
- Truth as what works implying that a true proposition is what works.
But there is a distinction between the truth and belief. Beliefs do not necessarily correspond to the state of affairs. Florian (1996) said that the truth is the agreement between representation and existence. The truth said by accounting is only a filter that allows understanding a reality. Neutrality is considered an important qualitative characteristic of accounting information (Belkaoui, 1992). To report the truth in accounting means to report the information without injecting any bias. Financial report is an alphanumeric communicating tool. Though it corresponds to a period, it does not guarantee the veracity other than certification. Statutory verification at a particular period, say, end of the year, not always stands as the proof for all the happenings throughout the year. Even digital manipulation is not impossible.
Now investors are cheated several times believing the certified truth of the financial statements. Most of the reality in those cases are found as made-reality and the truth comes out of it is artificial. So the bias factor is always present in the financial report. It will be a difficult proposition to inform the investors in describing the facts without inserting the personal views because record cannot be dissociated from the recorder. There is no history without bias (Morrison, 1977).
Accounting truth in reporting comes closer to accounting objectivity which justifies the choice of procedures. Objectivity is ascertained in four ways. Measurements that are impersonal, based on reliable evidence, came to a consensus to a qualified experts and the minimisation of statistical dispersion (Hendriksen, 1977). Normally, variance and standard deviation are generally offered as a measure of objectivity and verifiability. The narrower the dispersion, the more objective is the measure. Reliability refers to the quality which permits the users of data to depend on it with confidence on representation of what it proposes to represent (AAA, 1977). Ijiri and Jaedicke (1966) define reliability as the degree of objectivity or verifiability plus the bias or displacement factor.
Chua (1988) distinguished between traditional (real/ actual) and non-traditional (espoused/articulated)/ intended) roles of accounting information that suggests different kinds of truths conveyed by accounting information. Vickery (1978) pointed out two factors in measurement to establish the truth. The first factor is the presence of some attributes like accounting phenomena, standard monetary unit and appropriateness. The second factor relates to the presence of both primary and secondary measures.
The primary measures results from the assignment numbers to primary events or to the property of an object. The secondary measures result from the calculation or the combination of primary measures (Vickery, 1970). Accounting provides a narrative explanation of what really happened. What is provided is a narrative truth embodied in the generally accepted accounting principles. Historical truth stands opposite to narrative truth. Basically, historical truth demands that all efficacious constructions be reconstructions. Historical truth is time bound and is dedicated to strict observance of corresponding rules; our aim is to come as close as possible to what really happened (Spence, 1982). Still, the accounting truth does not come closer with the truth used in common parlance. The gap between these two forces to accept the made reality or the half truth by the investors.
Accountants are the people coming from the same society where the human values are depreciating daily. It will be an over expectation that the reporting truth will be exact to the fact. If the gap widens too far, fraud occurs. If it is within the tolerance limit it is difficult to shift it out which allows the recorder to manipulate as per their interest. The concept of fairness and justice in accounting remains theoretical and far from achieving the reliability based on it. Nowadays, the feedback statement and on-line enquiry from the shareholders are entertained based on annual reports which only provide the opportunity to raise queries.
Theoretically, we have used the phrase “true and fair” in the Annual Report for long. Realistically, it was felt that the reports are neither true nor fair as per the philosophical meaning of the terms. Fairness here stands as the governing team seems fit with a dressed certification. More specifically, it will not be wrong if it is said that ‘fairneE2 in financial report stands as market fairness. If the ‘convergence’ with IFRS meant to be fair for the sake of global investment, basically, it means ‘compliance’ only and not the protection of rights or preserving the equality of opportunity. The quality of the report is also proved to be market driven.
All about Accounting Truth
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