In accounting and auditing, the term “present fairly” signifies that a company’s financial statements are represented accurately, objectively, and in compliance with the applicable accounting framework or financial reporting standards. It means the financial information shown in the financial statements does not contain any material misstatements and gives a true and fair view of the company’s financial position, results of operations, and cash flows for the reporting period.
“Present fairly” is a phrase often used in the auditor’s report. If the financial statements present fairly, in all material respects, the financial position of the company, the auditor gives an unqualified or “clean” opinion.
However, it’s worth noting that “fair presentation” doesn’t necessarily mean absolute precision or accuracy in every detail. Instead, it means the financial statements are free from material misstatements and have been prepared following the principles and rules of the applicable accounting standards (like GAAP or IFRS), including adequate disclosures and presentation of financial information in a manner that reflects the underlying economic reality of transactions.
“Fair presentation” requires appropriate application of accounting policies, reasonable estimations and judgements by the management, and adequate disclosure of all material aspects related to the company’s financial situation and performance.
Example of Present Fairly
Let’s consider an example of an auditor’s report for a fictional company, XYZ Corporation, which has its financial statements prepared in accordance with the Generally Accepted Accounting Principles (GAAP) of the United States:
To the Shareholders and Board of Directors of XYZ Corporation,
We have audited the accompanying balance sheet of XYZ Corporation as of December 31, 2023, and the related statements of income, shareholders’ equity, and cash flows for the year then ended.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of XYZ Corporation as of December 31, 2023, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
ABC Audit Firm
In this example, the auditor, ABC Audit Firm, has concluded that XYZ Corporation’s financial statements for the year ended December 31, 2023, present fairly the company’s financial position, results of operations, and cash flows in accordance with U.S. GAAP.
The phrase “present fairly, in all material respects” signifies that the financial statements are free from material misstatements and have been prepared following the appropriate accounting standards. In other words, the statements are an accurate representation of the company’s financial reality, and the users of the financial statements can rely on the information presented for decision-making purposes.
However, it’s important to remember that an auditor’s opinion stating that the financial statements “present fairly” does not guarantee that the company is financially healthy or profitable. It simply means the financial information has been accurately presented according to the applicable accounting standards.