Although access information relating to management stewardship of

Although financial
reports, in particular, cash flow statements have the advantage of being
difficult to manipulate due to the reflection solely on cash in/out. One of the
major drawbacks is how information can be manipulated by management, by either
delaying the payment to suppliers in order to increase net cash inflow or by
purchasing goods via leasing agreements in order to avoid paying cash,
therefore miss conducting information about the reporting entity. The (Pro-Active
Accounting activities in Europe 2007) confirms this and argues that
shareholders make decisions not only in buying, selling or holding but as
owners of the business whether they need to intervene in its management.
Shareholders look to financial reporting to access information relating to
management stewardship of the business, however stated that “In not having
stewardship as an objective, there is danger in the future that information
useful for stewardship purposes, for example in an area such as related party
disclosures, may not be included in financial statements on the grounds that it
is not thought to be ‘decision-useful’ for resource allocation purposes”.
(PAAinE) also highlights the importance of specifying stewardship as a separate
objective of financial reporting and how a change of management can cash flows to
be very different and open “considerations of the potential returns from a reshaping
of the business” causing the business to “being run for effectively”. For example, the Hundred Group stated that they will continue to
focus on management’s performance as it “is a powerful indicator of their
ability in the future to generate net cash inflows.” HSBC also stated that t
“financial statements need to address stewardship in its broader context,
including disclosure about the quality and extent of risk management…and the
provision of reliable and objective information about past transactions”.
Similarly (Gjesdal 1981) argues that “accounting system is optimal for
valuation purposes is not necessarily the optimal system for stewardship purposes”.
However, studies by (Bushman et al. 2006) and (Banker et al. 2009) reveal an
extremely positive association for the respective proxies for the objectives of
accounting. While stewardship concerns are mentioned as a means ‘to assess an
entity’s prospects for future net cash inflows’, they are not regarded as a
separate objective. This reflects the Boards’ assessment that accounting
standards developed with focusing on the objective of not only valuation
usefulness, but also encompass information useful for stewardship purposes.


To conclude, it is no
doubt that the IASB’s achievements are considerable in terms of holding
fundamental characteristics and benefiting users of financial statements and
their decision making on future net cash inflows, as well as their
responsibility for the significantly positive association between stewardship
and valuation proxies, there are still on-going limitations which need to be
accepted or recognised by the IFRS and therefore need to be supported by the
principles they embody. In order for this to occur, there must be an agreement
on the conceptual framework that underlines the standards. Although there is a
current project to revise the framework, results raise doubts as to the
appropriateness to state generally a positive relationship between stewardship
and valuation the project, further uncovering fundamental cultural differences
that need to be resolved, especially in relation to the role of the stewardship

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