Stewardship versus economic decision making in financial reporting

The chief aim of fiscal describing harmonizing to the IASB ‘s Preparation and Presentation of Financial Statements model is that of supplying equal information in order to enable stockholders conduct economic determination devising. This brought the argument of whether such nonsubjective neglected the importance of the stewardship appraisal by the portion of stockholders. In the past decennary the IASB and the US FASB have been working on a joint undertaking to develop a conceptual model for fiscal coverage. Such conceptual model has the purpose of supplying a base for developing harmonised, future accounting criterions. In 2008, the boards issued an exposure bill of exchange of chapter one and chapter two of the conceptual model with chapter one undertaking the aims of fiscal coverage.

In the exposure bill of exchange that has been recently issued by the two boards, it was identified that the aim of fiscal coverage should be that of catering for all the determinations that capital suppliers make, including both resource allotment determinations and determinations made to protect and heighten their investings. Furthermore on the implicit in exposure bill of exchange there is stated that information about the stewardship of an entity ‘s economic resources should be considered as decision-useful information. Hence in this exposure bill of exchange it is clear that the two boards shifted from concentrating entirely on economic determination devising, to general determination devising, with stewardship being included in such broader definition.

Although this move to concentrate on determination utility instead than specifically on economic determination devising was a agency to subsume stewardship in the aim of fiscal coverage, writers such as Andrew Lennard still argue that stewardship and determination utility should be recognised as separate aims.

“ aˆ¦stewardship contributes an of import dimension to fiscal coverage, which should be reflected by specific recognition in the aims of fiscal coverage. ”[ 1 ]

The bulk of the writers who recognise stewardship as a cardinal aim in fiscal coverage, claim that fiscal statements should be prepared on the footing of historical costs. This ensures in supplying a clear, factual history of the minutess that occurred during the twelvemonth, over which direction had control. Therefore describing on historical cost can help stockholders carry through their stewardship appraisal needs better.

On the other manus, to provide for determination utility, particularly in footings of economic determination devising, fiscal coverage would concentrate more on the prediction of future hard currency flows. Such nonsubjective would be better addressed with ratings based on market values, since they better reflect the timing and certainty of future hard currency flows. This is taking to the outgrowth of rating techniques based on current values, such as just value.

The acceptance of just value accounting is possibly one of the most controversial issues presently being faced by the accounting universe. Both the IASB and the FASB have been working on this issue for the last twosome old ages. Traditionally, fiscal coverage has been entirely based on historical costs. The usage of current values, such as just value describing emerged comparatively late, and was applied to merely few selected countries. One of the countries where just value had a major influence is in the measuring of fiscal instrument. Using market values to value Financial Instruments is deemed to be dependable ( since markets in these points are good developed ) and relevant ( because the values of fiscal instruments can see big fluctuations, therefore historical costs depicts a really hapless image of current values ) . However, in the nearby hereafter, just value measuring is likely to be extended to other assets, particularly in the visible radiation of the fact of the IASB ‘s and FASB ‘s sensed penchant for just value measuring even where the market is non good developed.

“ The IASB believes that just value measuring under IFRS and GAAP is already consistent. Besides, the IASB and the FASB will go on to work together to guarantee that using just value in an inactive market is accounted for systematically ”[ 2 ].

Stockholders are divided into two chief classs, private persons and institutional investors. Although fiscal coverage is designed to provide for the demands of capital suppliers, due to the deficiency of cognition normally found within private single stockholders, concerns may originate on what such private single stockholders identify as utile, for their determination devising.

Need for the survey:

The thesis ‘s aim is to place the current demands of private stockholders and what they identify as valuable information. The thesis shall so analyze to what extent the focal point on determination utility and the prediction of future hard currency flows through just value accounting shall help private stockholders in fulfilling their demands.

Research Methodology:

The thesis will be of a qualitative nature. The purpose of such thesis is to accomplish a deep apprehension of what local private stockholders value as relevant information, and to analyze whether the emerging construct of just value accounting will be supplying such users more relevant accounting information. The purpose of the survey is non to generalize findings but to obtain rich description on the implicit in subject.

The method being taken into consideration to garner the qualitative information is the puting up of focal point groups with stockholders. Such group treatments provide direct grounds about similarities and differences in participant ‘s sentiments. Participants are non required to reply for every inquiry enabling them to construct on one another ‘s response. Furthermore by moving as a moderator I can guarantee that the treatment is ever kept on path.

Finally, focal point groups can be considered as a more plausible solution when compared to open ended interviews with stockholders. The response rate of stockholders to a focal point group is likely to be greater when compared to a personal 1 on one interview, since the latter is perceived as more intrusive. The chief restriction of utilizing focal point groups is possibly the hazard that people influence each other ‘s response. As a consequence the response of participants can be different than the response that would hold been generated from a private 1 on one interview.

Stockholders from two local, listed companies are traveling to be considered as the population sample. These companies are Bank of Valletta and HSBC. The pick fell on these companies because due to the recent alterations to IAS 39 and IFRS 7, just value measuring had a considerable impact on the banking sector. Thereby, due to such fact stockholders can be even more concerned and affected with the underlying capable. Two focal point groups are planned to be set, one with BOV stockholders and one with HSBC stockholders, with groups runing from six to twelve members. Shareholder ‘s list can be obtained from the Malta Financial Services Authority. The sampled population will except abroad stockholders, trusts and investing companies, therefore concentrating entirely on local private stockholders.

Chapters Overview:

Introduction: foremost the stewardship versus economic determination doing argument will be tackled, and its effects on rating on fiscal coverage will be analysed. The thesis shall so concentrate on the outgrowth of just value as a measuring tool and its prospective use. Furthermore just value will be compared and contrasted with cost based rating. The debut will besides include an scrutiny of how each rating method caters for the single private stockholders ‘ demands.

Literature Reappraisal: literature reappraisal can be focused on two facets being the argument of just value measuring versus cost based measuring, and the argument of whether private stockholders use accounting information largely for economic determination devising, or to measure stewardship.

Research Methodology: in this subdivision I shall depict how the consequences were achieved, explicating how the information was collected and analyzed. This subdivision shall incorporate the failings and restrictions of the research methods and methodological analysis used. In the methodological analysis I shall besides include any jobs that I anticipated and explicate any stairss taken to forestall them from happening.

Findingss: this portion of thesis will incorporate the information generated from the focal point groups. Consequences will be presented, interpreted and discussed in this subdivision.

Decision: this portion will supply reasoning penetrations on the research, and recommendations of other research inquiries that can be tackled to better the research on the country. The chief inquiries to be answered in this subdivision are: what has been learnt from the consequences? How can this cognition be used? What are the defects of the research?


Accounting Standards Board. ( 2007 ) . STEWARDSHIP/ACCOUNTABILITY AS AN OBJECTIVE OF FINANCIAL REPORTING A remark on the IASB/FASB Conceptual Framework Project. United kingdom: Accounting Standards Board.

Alan Bryman, E. B. ( 2007 ) . Business Research Methods 2 edition. United kingdom: Oxford University Press.

Doron Nissim, S. P. ( 2007 ) . ON THE APPLICATION OF FAIR VALUE ACCOUNTING. Columbia Univesity.

Lennard, A. ( 2008 ) . Stewardship and the aims of fiscal statements: a remark on IASB ‘s Preliminary Positions on an improved Conceptual Framework for Financial Reporting. United kingdom: Accounting Standards Board.

RONEN, J. ( 2008 ) . To Fair Value or Not to Fair Value: A Broader Perspective. Accounting Foundation, Sydney.

Schmidt, S. ( 2004 ) . Fair Value Accounting. United states: Governors of Federal Reserve System.

Whittington, G. ( 2008 ) . Fair Value and the IASB/FASB Conceptual Framework Project: An Alternate View. Cambridge: University of Cambridge.