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Presentation of the financial statements – true and clear view

by Izabela Andrzejak and Kornelia Dziasek

13 May 2025

True and clear presentation of financial statements is one of the fundamental accounting principles. Find out what it is about and why it is key to the company’s credibility and building trust.

TABLE OF CONTENTS

What is the principle of true and fair presentation of the financial statements about?
Presentation of the financial statements – other principles
Users/readers of financial statements
Financial statements – components
Who prepares the financial statements?
Summary

What is the principle of true and fair presentation of the financial statements about?

The principle of clear and fair presentation of the financial statements is formulated in Article 4(1) of the Polish Accounting Act as follows:

“Entities are obliged to follow the adopted accounting rules (policy) to give a true and fair view of the entity’s net worth, financial position, and profit(loss)”.

Truthfulness in the context of financial reporting is the foundation ensuring that all information presented in the statements give a fair view of the entity’s business standing. This means that accounting data should accurately present:

the entity’s assets (e.g. tangible assets, inventories, receivables);
liabilities (e.g. loans, payables to suppliers);
financial performance (revenues, expenses, profit/loss);
business transactions (e.g. depreciation, purchases, sales) according to their economic, not just legal, substance.

Truthfulness forces avoidance of manipulation, creative accounting and free interpretation of law to achieve favourable outcomes. It also requires consistent and transparent observance of well-established accounting rules. Assets and liabilities must be properly measured according to the Accounting Act or other standards (e.g. IFRS if applied) while abiding by the principle of prudence at the same time.

The principle of fair presentation requires that information disclosed in the financial statements be transparent, organised and understandable. So, the financial statements should be compiled in such a way that an individual having basic knowledge of finance and accounting can easily understand them. You should avoid excessively specialised language, unknown abbreviations and concealed information. The data should also be detailed enough for a reader to understand the entity’s situation. Significant items should be accompanied by explanatory notes that describe the data source, measurement rules, changes against previous periods etc. The fair presentation requires that the data in the statements be consistent and comparable with the data for previous periods.

According to Article 4(1b) of the Accounting Act, whenever a direct application of a certain provision may distort the view of the financial standing, the entity should not apply it, but must clearly and transparently explain it in the notes to the financial statements so that the users of the statements can fully understand how the derogations affect the presentation of the financial standing.

Also the International Financial Reporting Standards (IFRS) and the Generally Accepted Accounting Principles (GAAP) contain the principle of true and fair presentation of the financial statements. Those standards require the financial statements to accurately present the financial activities of the reporting entity. This includes accurate disclosure of revenues, expenses, profits and potential risks.

The financial statements must include all information necessary to understand the entity’s situation. Therefore, the principle of true and fair presentation is to ensure that the financial statements are useful to their readers and let them make decisions based on reliable data.

Presentation of the financial statements – other principles

The financial statements should be compiled also with other principles in mind:

Materiality principle

It says that information in the financial statements is material if it could affect decisions made by the reader if it was absent or distorted.

Substance-over-form principle

It says that despite the universal rules applicable to all entities that keep the books of account, an entity may forego applying a provision of the Accounting Act in an effort to present its net worth, financial position and profit(loss) in the most true and fair fashion. However, it may do so only in exceptional and justified situations, e.g. due to extraordinary circumstances affecting the entity.

Users/readers of financial statements

Financial statements are addressed to individuals, institutions and entities that use them to make economic, investment, lending or operating decisions. Therefore, the financial statements are compiled not only to meet the legal requirements but also to let their users make apt and reasonable decisions based on the disclosed data.

Users of financial statements include, but are not limited to:

investors – shareholders; this group is most interested in data for assessment if the entity is worth investing in, what risks may occur, and what its potential for dividend payment is;
lenders – this group includes banks and other financial institutions; they use financial statements to assess if the company is able to pay instalments and interest on time and whether the company is solvent;
suppliers – they are most interested in the entity's financial standing to assess if the company is able to pay its trade liabilities by due date;
customers – an entity may have customers with long-term agreements (e.g. 5–10 years); this group will be interested in the company’s ability to continue as going concern if the customer’s business strongly depends on, e.g. the company’s production capacities, because the company’s bankruptcy may also affect the customer’s business continuity;
entity’s management – information in the financial statements helps the management to make right decisions about the company’s growth and plans;
general public – depending on the entity’s size, it may contribute more or less to the growth of the region of its operations, e.g. a large manufacturing plant may create jobs.

Therefore, the financial statements are an important tool for various stakeholders who rely on them to make economic decisions. Each group uses the financial statements differently, depending on their needs and objectives.

Financial statements – components

Financial statements include accounting data of two periods – the reporting period and the comparative one (the year before). The period is the financial year which usually lines up with the calendar year.

Financial statements consist of several components listed in the Accounting Act, which are required to give a true and fair view of the entity’s net worth, financial position and profit(loss). They include:

balance sheet – presents the entity's property (assets) and how it is funded (liabilities) as of the balance sheet date, which is the last day of the financial period, and as of the previous balance sheet date;
profit and loss account – a summary of revenues and expenses over the entire year as well as profit or loss on the business;
notes to the financial statements – include the introduction to the financial statements, which describes the most important details of the entity, the accounting rules (policy) it applies, e.g. depreciation rate, valuation methods of assets and liabilities, and explanatory notes to the financial statements which present information that is not disclosed in other financial statements but which is relevant from the point of view of external users;
statement of changes in equity – presents changes to the entity's equity (e.g. whether a dividend has been paid, whether the company has appropriated profit to capital reserves, or whether loss carried forward has been deducted);
cash flow statement – shows cash flows (inflows and outflows) from the beginning until the end of the financial period.

All these components together deliver a full picture of the entity’s net worth and financial position, its performance and cash management, thus allowing users to make full informed business decisions.

Who prepares the financial statements?

Financial statements are prepared by economic operators, that is, companies, partnerships, organisations and other legal entities which pursue business and are obliged to report their financial situation.

The responsibility for clear and fair presentation of the financial statements rests with the entity's manager, as defined in Article 52 of the Accounting Act. Financial statements should be compiled within three months and approved no later than six months after the balance sheet date.

Financial statements are signed, and dated, by a person responsible for keeping the books of account and by the entity’s manager. If an entity is managed by a collective body, all members have to place their signatures. Any refusal to sign must be justified in writing and attached to the statements.

As regards companies which are subject to mandatory audit, the statutory auditor has to check the financial statements for compliance with the laws and accounting standards, and reliability. The statutory auditor assesses the financial statements, expresses his or her opinion (e.g. by issuing an unqualified opinion, a qualified opinion, an adverse opinion) and recommends modifications in case of errors or non-compliance with the accounting standards. Remember that the statutory auditor does not prepare the financial statements but checks the disclosed data for correctness.

Summary

Financial statements play a key role in the entity’s financial communications with its stakeholders (e.g. shareholders, customers, banks). There are a number of factors that may adversely affect the clarity of the financial statements, e.g. sophisticated financial instruments and complicated accounting standards. That is why the principles such as fairness, clarity, completeness, comparability and prudence are necessary to make addressees confident that the data disclosed in the statements are true, understandable and useful in decision making.

Clear and fair financial statements are fundamental to building trust and conducting responsible business. As the financial environment grows in complexity, the responsibility for clear and fair presentation of the financial statements is gaining in importance.