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The Bruce Column — Conserving the concept of stewardship

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Sep 25, 2013

Ever since the specific mention of stewardship fell out of the IASB’s work on a conceptual framework, there has been a clamour for its reinstatement. Our regular, resident columnist, Robert Bruce, takes a look at moves to ensure its return.

The term ‘stewardship’, the International Accounting Standards Board (IASB) told us, does not translate well in languages across the world. So it dropped it from the current version of its conceptual framework. Then the debate started up and it is showing little sign of ceasing. Over and over again at investor forums and similar events it is stewardship to which investors and analysts return.

But there may be an opportunity to reinstate it. The latest bulletin from the main European standard setters, including the UK Financial Reporting Council and EFRAG, is timely and is published as the IASB is consulting on the conceptual framework and is asking in its discussion paper issued in July whether stewardship should be reinstated. The bulletin points out that there is ‘considerable controversy about whether accountability, or stewardship, should also be explicitly included’.  The IASB points out that in the original, pre-2010, framework the word stewardship was not used in describing the objective of general purpose financial reporting, but although the chapter concerned does not use the phrase stewardship, ‘it was not the intention of the IASB to remove the concept of stewardship from the objectives of financial reporting’.

Stewardship is all about directors’ duties and how they discharge them. Current investors are interested in cash, the management of resources and so on. For investors looking to the future it could be seen as less important. But the long-term relies on the current stewards not wrecking and wasting current resources. So ultimately it is equally important for future and current investors.

So the framework needs to stress both ideas, that of holding management to account and producing ‘decision-useful’ information. ‘There is’, as the bulletin points out, ‘a very significant overlap between accountability and decision-usefulness’. That hasn’t stopped some arguing that an accountability objective and decision-usefulness are incompatible.

But if an overlap exists should it be recognised explicitly in the conceptual framework? The final conclusion in the bulletin is a resounding ‘Yes’. ‘EFRAG and the FRC believe the provision of information on accountability/stewardship is a primary objective of financial reporting’, it says, ‘not merely a part of or ancillary to another objective, and should be reinstated as such’.

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