Swire Pacific, Ltd., is one of the largest companies in the world. The primary operations of the company are in the region of Hong Kong, China, and Taiwan where it has operated for over 125 years. Swire operates Cathay Pacific Airways and has extensive real estate holdings in Hong Kong.
The 2008 auditor’s report (prepared by PricewaterhouseCoopers) for Swire Pacific, dated March 12, 2009, read as follows (in part):
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the accounts. . . . An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the
Directors, as well as evaluating the overall presentation of the accounts. . . . In our opinion, the accounts give a true and fair view of the state of affairs of the Company and of the Group as at 31st December 2008. . . .
Although the concept of a “true and fair view” is not part of the auditor’s terminology in the United States, it is used by auditors all over the world. The “true and fair view” concept states that an auditor must make sure that the financial statements give an honest representation of the economic status of the company, even if the company violates generally accepted accounting principles in order to do so.
1. Review the opinion language in the auditor’s report for Wal-Mart (see Appendix A). Does the audit report state unconditionally that Wal-Mart’s financial statements are a fair representation of the economic status of the company?
2. Auditors in the United States concentrate on performing audits to ensure that financial statements are prepared in accordance with generally accepted accounting principles. What economic and legal realities in the United States would make it difficult for U.S. auditors to apply the “true and fair view” concept?