RSS feedsThe International Accounting Standards Board says it wants a discussion on stewardship and accountability as an objective of financial reporting. And it is certainly getting one, as support grows for stewardship to be identified as a separate objective.
The IASB set up this row last autumn when, along with the US Financial Accounting Standards Board, it suggested that a conceptual framework for financial reporting should specify only one objective of financial reporting – decision-usefulness. This would provide information that is useful to users in making investment, credit and similar resource-allocation decisions. The IASB and FASB said that this single concept encompassed the traditional objective of “providing information useful in assessing management’s stewardship”.
Stewardship enquiry
A coalition of European standard setters has analysed the response to the
IASB/FASB discussion paper, Preliminary Views on an Improved Conceptual
Framework for Financial Reporting, to challenge the proposed downgrading of
stewardship and to examine whether a consensus exists on the meaning of
stewardship.
The analysis suggests that “most respondents [believe] the objective is about assessing management’s competence and integrity, including the success of their strategy in managing the business”. One objective of financial reporting is to serve as a dialogue between management and shareholders, providing shareholders with the information they need to make business decisions. Academics and small investors view stewardship as being about governance.
The UK Accounting Standards Board says that without stewardship as an objective “there is a danger in the future that information useful for stewardship purposes may not be included in financial statements on the grounds that it is not ‘decision-useful’ for resource allocation”.
Stewardship is linked to agency theory and is a broader notion than resource allocation as it focuses on both past performance and how the entity is positioned for the future. The coalition argues that retaining stewardship as a separate objective would ensure there is “an appropriate emphasis on company performance… and not just potential future cashflows”.
The disquiet among investors who value information on management performance was supported by two IASB board members – including Sir David Tweedie himself. The minority argued that while stewardship and decision-usefulness do not necessarily conflict, they do carry a different emphasis – an emphasis which many stakeholders think is worth retaining.
