Faithful Representation

What is meant by faithful representation?

Faithful representation means that the user is assured that the information presented is complete, without bias or undue error, and neutral.

Faithful representation is closely related to reliability. Accountants require information to be reliable, which means that the information reported represents the facts as closely as possible. This is a major reason that accountants record assets in the fnancial records at their original historical cost. The cost of a resource acquired is determined on the basis of the exchange price negotiated between the buyer and the seller. For accountants to record fair values requires the use of estimates, appraisals or opinions, all of which are more unreliable, even though such information may be relevant to users for decision-making purposes.

In the past, users of accounting information were given the most reliable data available, that is, data were reported in terms of historical cost. However, it was argued that the accountant had sacrifced adegree of relevance so that information was reliable. Fair values are usually relevant in making decisions and, therefore, the reporting of cost data as the only reliable information is questionable. Balancing relevance with faithful representation in order to determine the content of fnancial statements for decision-making purposes by internal and external users is a constant challenge facing an accountant.

An additional aspect of faithful representation is that the economic substance of transactions and events should be given priority