Stewardship Financial Reporting

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To What Extent And How The Stewardship Aspect Helps The Decision Usefulness Aspect In Financial Reporting

Financial reporting is a formal process by which a company communicates with its stakeholders through disclosing its financial figures. According to the recent conceptual framework of IASB about financial reporting, there are two aspects of objectives of financial reporting. One is stewardship, which deals with management responsibility towards the company, and another one is decision-usefulness, which mainly deals with the decision-making users of the financial statement.

Stewardship is an ethical term in accounting that imposes a responsibility to the management of an organization to take care of business carefully and provide reliable information the stakeholders about the resources of business by financial reporting (Williamson, 2002). On the other hand, decision usefulness is a concept related to the preparation of financial statement in which a company try to provide better information by considering the relevant decision makers.

There was a debate among the experts whether the stewardship should consider as an objective of financial reporting or not and whether the decision usefulness provide same concept like stewardship. However, later the IASB and FASB resolve this debate by introducing an exposure draft. In the exposure draft, it told that stewardship should consider as a separate objective of financial reporting (Kothari, 2008).

Stewardship Financial Reporting
Stewardship Financial Reporting

Some experts believe that the stewardship has relationship decision usefulness. They also believe that the stewardship aspect of objective helps the decision usefulness to an extent. On the other hand, some experts believe that there is no relationship between these two. Let us see how and to what extent stewardship helps the decision usefulness.

  • Stewardship helps to increase the decision usefulness to the relevant decision maker by imposing responsibility to the management to take care of business professionally. When the management take cares the business resources in an efficient way, the output of financial report will automatically be reliable (Young, 1998).
  • Stewardship influences the organization to conduct audit of their financial statements by an independent auditor. The decision usefulness will rise when an independent auditor review the financial statement (Latham, 2005).
  • Stewardship helps in accurate valuation of a company by recording and providing accurate information to the decision makers. This accurate valuation information increases the reliability as well as decision usefulness among the stakeholders.
  • It protects the interest of all related parties to the business by disclosing right information to the right parties. When the flow of information is in a perfect condition, the related parties of business will not lose their interest to the business and can make their decision in an efficient way.
  • Stewardship helps to satisfy the regulator body’s of an organization by managing the organization carefully, ethical financial disclosure and giving proper payment such as tax to the tax authorities. When the users of financial statement see that the regulator body’s are satisfied with this origination, they will also satisfied and the decision usefulness of financial statement will ultimately rise (Latham, 2005) .
  • It highlights the responsibility not only the management but also the regulators, investors and credit providers etc. This helps to increase the financial accuracy of the company. For an example, stewardship imposes the government to seek accurate documentation of financial statement of a company to project future growth in the stock exchange. When the company provide actual documents, the relevant decision makers of financial statement can take proper decision by using accurate information.
  • Stewardship helps to reduce agency problem in an This attracts more potential investors to the organization. When the agency problem reduces, the decision maker can make better financial decision about business and the concept decision usefulness will increase (Gjesdal, 1981).

Advantages of Stewardship

The extent to which the stewardship helps the decision usefulness is a relative concept rather than absolute. This means the decision usefulness may vary upon the degree of stewardship of the management or agent of a company. According to the Joachim Gassen (2007), the usefulness of financial statement in decision-making is much depends on the information available to the market participant. The information availability directly related to stewardship of the management. If the management discloses fair information to the users, the decision usefulness of financial reporting will increase. Let us see a table about the extent to which stewardship helps decision usefulness.

Stewardship

Influence

Degree Decision usefulness Decision output

Management integrity to business

Good

High

Positive

Bad

Low

Negative

Recording financial information accurately

Yes

High Positive
No Low

Negative

Conduct audit by independent auditor

Yes

High Positive
No Low

Negative

Accurate financial disclosure

Yes

High

Positive

No High

Negative

However, there are some arguments against the relationship between stewardship and decision usefulness according to some expert’s opinion. This means the stewardship and decision usefulness are two separate objectives without any influence to each other.

  • Stewardship and decision usefulness should define as completely separate objectives because of their parallel relation (Ernst and Young, 2008).
  • Stewardship mainly deals with past performance of organization to asses’ future performance. On the other hand, decision usefulness provides better information by considering present situation of the company. Therefore, the relations between these two are different (Hand, Isaaks and Sanderson, 2005).

Though there are some negative views about the relationship between stewardship and decision usefulness, there are some strong positive points also. Stewardship directly or indirectly influences the decision usefulness of a financial statement. It helps to increase management integrity, accurate financial recording, increase the reliability of information to the decision makers by conducting regular audit and disclosing accurate information. These points ultimately increase the decision usefulness of financial reporting to the related decision makers. The extent to which stewardship helps decision usefulness may vary according to the degree of stewardship of management to the information in financial reporting.

References

Duncanwil.co.uk (2002) Duncan Williamson: Concepts and Conventions of Accounting

Ernst & Young (2008) International GAAP 2008: Generally Accepted Accounting Practice under International Financial Reporting Standards. International: Wiley (April 14, 2008), p.146 page, stewardship.

Gassen, J. (2007) Are stewardship and decision usefulness complementary of conflicting objectives of financial accounting?

Gjesdal, F. (1981) Accounting for Stewardship. Journal of Accounting Research, 19 (1), p.208-231.

Hand, L., Isaaks, C., & Sanderson, P. (2005). Introduction to accounting for non-specialists. London, Thomson Learning.

Kothari, S. (2008) conceptual framework of financial reporting. International: Pearson, p.38-40.

Latham, A. (2005) The Stewardship Function in Accounting

Ventureline, D. (n.d.) Accounting Theory Definition

What is Financial Reporting? (n.d.) What is Financial Reporting?

Young, R. (1998) The stewardship role in accounting

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Steve Jones

My name is Steve Jones and I’m the creator and administrator of the dissertation topics blog. I’m a senior writer at study-aids.co.uk and hold a BA (hons) Business degree and MBA, I live in Birmingham (just moved here from London), I’m a keen writer, always glued to a book and have an interest in economics theory.

2 thoughts on “Stewardship Financial Reporting”

  1. I like the valuable information you provide in your blog. Can you please upload more material on Financial Reporting as I need material like this for my studies. Do I have to buy dissertations from you?

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