Are financial statements free from bias?
At a time when there is much discussion regarding the formulation of a Conceptual Framework for external financial reporting, this paper sets out to question whether it is realistic to view modern financial statements as being neutral. It examines one of the prime reasons that brings about the need for neutrality - namely to enable financial statement users to take economic decisions based on them. The paper then questions whether users do take decisions based on the financial statements, if they do, whether the users are really competent enough to do so, hence whether the right decisions are taken, and in fact whether these decisions should be made on the basis of the financial statements. The paper then raises the question as to whether management is the main ╬user' of the financial statements and cites many instances of where management do not seem to be neutral regarding the composition of the financial statements. Finally the paper questions whether an unqualified audit report implies that the financial statements are free from bias. The paper points out that the production of a Conceptual Framework based on user-primacy and built on the twin pillars of neutrality and verifiability of financial statement data could have profound implications for the external auditor.