Critical issues on the enforcement of the "true and fair view" accounting principle. Learning from Parmalat

Abstract

This paper analyses and discusses the "positive" issues of the overriding international financial reporting standards principle of "true and fair view" in connection with corporate governance mechanisms. The analysis is based on case study evidence. Empirical evidence from the Parmalat case with regards to the role of the information supply and demand side agents is analysed. This study provides evidence on how the relationship between corporate financial reporting and corporate governance mechanisms may influence the enforcement of the international financial reporting standards overriding principle of "true and fair view". Evidence is found that the enforcement of the "true and fair view" principle is intrinsically flawed when the accountability and the overall corporate governance systems do not work properly. Some evidence is also found for the argument that a lack in the quality of information supplied by the corporate financial system hurdles the role information demand side agents as effective monitors.