Hermeneutics and Cash: An Essay on the True and
LAWRENCE A. CUNNINGHAM
Boston College - Law School
Boston College Law School Research Paper No. 06
North Carolina Journal of International Law and
Commercial Regulation, Forthcoming
The cash flow statement can substantially meet
the otherwise intractable semiotic challenges
posed by the "true and fair view" requirement
The US Sarbanes-Oxley (SOX) requires CFO/CEO
certifications that financial statements "fairly
present" condition and results. This is akin
to the "true and fair" requirement introduced
in the EU's Fourth Directive in 1978 and still
provoking disagreement and alternative interpretations.
The broad split is whether compliance with accounting
rules is enough, whether overrides are necessary
or whether supplemental disclosure is enough.
SOX adopts the US/UK view denying that compliance
is enough, still not the global view (for example,
German accounting scholars defend compliance coupled
with supplemental disclosure by invoking the philosophy
It is ironic that SOX's "fairly presents"
officer certification - like the EU Fourth Directive
- applies the requirement to the balance sheet
(condition) and income statement (results) but
not to the cash flow statement. This is ironic
because the cash flow statement is uniform globally
and presents a true and fair view without even
trying (SEC rules implementing SOX's officer certification
requirements do extend the fairly presents requirement
to the cash flow statement).
One consequence is that the cash flow statement
offers the greatest avenue of promise for global
accounting harmony - perhaps a fait accompli.
This is a triumph for global accounting considering
the broad utility of the cash flow statement to
reveal critical information ranging from liquidity