EFRAG: strong support for stewardship as core objective of financial reporting

25 June 2007

EFRAG and various European National Standard Setters published a brief paper discussing the rationale for including stewardship, or directors’ accountability to shareholders, as a separate objective of financial reporting.

The IASB and FASB proposed in their July 2006 Discussion Paper (DP) Preliminary Views on an improved Conceptual Framework for Financial Reporting that 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 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 which can be demonstrated by way of examples.

Full paper

© EFRAG - European Financial Reporting Advisory Group