Southern Railway of Peru Ltd v Owen: HL 21 Jun 1956

When drawing up accounts where the company faces contingent laibilities and provision has to be made, the principles upon which such provisions are made does not depend upon (Lord Radcliffe) ‘any exact analysis of the legal form of the relevant obligation’ but upon estimates of what in practice is likely to happen.
The House noted the difference between what is required by way of accounting standards in a financial statement so that a full picture may be presented on the financial position of the company and what is profit for the purpose of profits taxes. Lord Radcliffe said: ‘All this is very important, because, of course, accountants are very specially concerned with the problems that attend the true ascertainment of a year’s profit and the establishment of techniques that assist in this. But, for all that, there is nothing in the case that seems to me to fix on the point that is really the heart of this appeal. The requirements that an auditor may make before signing a balance sheet (I assume that the words used in the case are meant to cover the statutory reference to the profit and loss account) do, no doubt, cover his opinion that that account gives a ‘true and fair view’ of the profit for the financial year, but I do not think that such requirements are necessarily the same thing as the auditor’s opinion that some particular provision could not be omitted without compromising the true and fair view. It is not possible completely to equate the balance shown by a company’s profit and loss account with the balance of profit arising from the trade for the year.’


Lord Radcliffe


[1956] UKHL 4, [1957] AC 334, 37 Tax Cas 602, [1956] 2 All ER 728




England and Wales

Cited by:

CitedLaw Society v Sephton and Co (a Firm) and Others HL 10-May-2006
A firm of solicitors had a member involved in a substantial fraud. The defendant firm of accountants certified the firm’s accounts. There were later many calls upon the compensation fund operated by the claimants, who sought recovery in turn from . .
Lists of cited by and citing cases may be incomplete.

Negligence, Income Tax

Updated: 06 July 2022; Ref: scu.241656