True and fair view

What it means

A true and fair view is the fundamental requirement of the Slovak Accounting Act for financial statements. They must present assets, liabilities, equity, financial position and results in such a way that users can form a correct judgement about the company.

“True” means the accounts reflect reality: assets actually exist and liabilities are complete. “Fair” means appropriate accounting methods and estimates were used. The requirement applies to the statements as a whole: formally correct individual entries are not enough if the overall picture misleads.

Accounting principles such as substance over form, prudence and materiality serve to meet this requirement. Where the figures alone are not enough, the notes to the financial statements provide explanation.

How it works in practice

When preparing the statements, we go through the issues that most often threaten a true and fair view with clients: unrecorded invoices, incorrect accruals, missing allowances or provisions, assets not put into use and inventory not counted. Each of these distorts both profit and the balance sheet.

For unusual transactions, such as related-party deals with shareholders, sale and leaseback or complex contracts, we assess their economic substance and how to present them so readers understand what happened. Significant matters are described in the notes.

For companies subject to a statutory audit, the auditor’s opinion addresses precisely whether the statements give a true and fair view. For small companies without an audit, responsibility lies with the statutory body that signs the statements and the accountant who prepares them.

What to watch out for

A true and fair view does not conflict with tax planning, but it must not be sacrificed to it. If a company deliberately leaves out revenue, overstates costs or hides liabilities, its statements do not give a true and fair view, with consequences towards the tax authority, banks and creditors.

The opposite problem is also common: statements that are formally correct but lack explanation. If a company fails to disclose a significant event after the reporting date or a disputed liability in the notes, the picture can mislead even though the numbers add up.