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European paper on stewardship as a financial reporting objective

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25 Jun 2007

The European Financial Reporting Advisory Group (EFRAG) and a number of other European accounting standard-setters – under the lead of the UK Accounting Standards Board (ASB) – have today published a brief paper discussing the rationale for including stewardship, or directors' accountability to shareholders, as a separate objective of financial reporting.

The paper notes that the IASB and FASB proposed in their July 2006 Discussion Paper (DP) Preliminary Views on an Improved Conceptual Framework for Financial Reportingthat the converged framework should specify only one objective of financial reporting, that of 'decision-usefulness' for resource allocation. They argued that this objective 'encompasses providing information useful in assessing management's stewardship'. The European paper seeks to demonstrate that:
  • there is a broad consensus amongst the majority of the respondents that the stewardship/accountability objective should be a separate objective of financial reporting;
  • stewardship/accountability 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. It should therefore be retained as a separate objective of financial reporting to ensure that there is appropriate emphasis on company performance as a whole and not just on potential future cash flows; and
  • stewardship/accountability has implications for financial reporting that can be demonstrated by way of examples.
Click to Download the Paper (PDF 1,021k).

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