true and fair

The Principle of Real and Fair

The Principle of Real and Fair, also known as the Principle of Substance Over Form, is an accounting principle that is based on the idea that the transaction should be reported in the books of accounts of a business in such a way that it correctly reflects the true financial position or circumstances of the transaction. Simply put, it is the practice of seeing past legalistic forms to recognize the true economic substance of the transaction. It is derived from the foundational principle of financial reporting, the accrual account concept. This concept states that transactions must be reported in the period in which they occur, not when cash is paid or received.

To properly practice the Principle of Real and Fair, accountants must look beyond the legalistic nature of the transaction and focus on the true nature of the transaction. This includes considering the form of the transaction as well as the intent behind it. If the form of the transaction does not represent the actual economic substance of the transaction, then the accountant must make the necessary adjustments in order to report the transaction in a manner that does.

For example, assume that a company issues a loan to a business partner for $10,000, but the note is issued as a $30,000 loan with $20,000 of the amount forgiven. In looking at the form of the transaction, it appears as though the company has issued a $30,000 loan, but the economic substance of the transaction is that the company is only on the hook for $10,000 of the loan. In the financial books, the accountant must adjust the loan amount and the forgiven amount accordingly in order to properly reflect the true nature and size of the transaction.

Practicing the Principle of Real and Fair is not always easy and often requires the accountant to look closely at the facts and form of the transaction as well as its intent. This can often be a complex undertaking, and it is important to remember that when accounting for transactions, the surface form of transactions should not be taken as gospel, but instead, the underlying economic reality should be the key factor when making accounting decisions.

Fairness and truthfulness are two different principles in life, but they should not be confused, as their implications can be very different.Truthfulness is concerned with being honest and expressing the facts, regardless of whether those facts are positive or negative.Fairness, on the other hand, is concerned with being even-handed in our interactions with others.

Truthfulness involves being truthful to oneself and to other people, for example by being honest about our motivations and true intentions or by expressing facts or opinions accurately.Truthfulness has a moral component, as it implies an understanding of what is right and wrong, and it is also central to developing trust.For example, one cannot be truthful when hiding information or expressing opinions that are false and not informed.

Fairness, while related to truthfulness, is a different concept in that it involves being fair and impartial in our interactions with other people.This means that regardless of our own preferences, we try to be considerate and unbiased toward others, recognition their rights to opinion and expression.It entails being fair in the process of decision-making, which includes being aware of how our decisions may affect others, being willing to listen to alternative points of view and striving to find a balanced solution that is beneficial to all parties.

In conclusion, truthfulness and fairness are related principles, but they have distinct meanings.Truthfulness involves understanding the facts behind a situation and expressing them honestly, while fairness entails being even-handed and unbiased in our interactions with others.Both of these principles are important for living in harmony with others and for establishing ethical relationships.