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An Empirical Investigation of the True and Fair Override



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The True and Fair View (TFV) concept requires UK as well as EU companies to depart from the letter of the law or a promulgated accounting standard in special circumstances. A similar requirement for an override appears in IAS 1. This paper analyzes a sample comprised of UK public companies during 1998-2000 that invoked a TFV override to assess whether the override has been used opportunistically. The results of the paper suggest that the TFV override is not invoked in reaction to a decline in performance. Furthermore, overriding firms appear to exhibit similar performance to that of a sample of firms matched on industry and size who did not invoke an override. At the same time, it seems that the ability to override offers a mechanism through which a generally accepted accounting practice may develop. The findings of this paper may be useful to the debate about the implications of the override required by International Accounting Standards to standards-setters in the US and around the world.

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Accounting Working Paper

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