Stewardship versus economic decision making in financial reporting

Stewardship versus scotch decision making in pecuniary reportingThe main objective of financial reporting tally to the IASBs Preparation and Presentation of Financial Statements framework is that of providing adequate learning in order to enable sh areholders deal out economic decision making. This brought the line of reasoning of whether such(prenominal) objective neglected the importance of the stewardship assessment by the phonation of shareholders. In the past decade the IASB and the US FASB have been working on a joint drop to develop a conceptual framework for financial reporting. Such conceptual framework has the aim of providing a base for developing harmonised, early accounting standards. In 2008, the boards issued an exposure draft of chapter sensation and chapter two of the conceptual framework with chapter one tackling the objectives of financial reporting.In the exposure draft that has been lately issued by the two boards, it was place that the objective of fi nancial reporting should be that of catering for all the decisions that capital providers make, including both resource allotment decisions and decisions made to protect and enhance their investments. Furthermore on the underlying exposure draft there is give tongue to that information about the stewardship of an entitys economic resources should be considered as decision-useful information. Hence in this exposure draft it is suck that the two boards shifted from rivet solely on economic decision making, to general decision making, with stewardship organism include in such broader definition.Although this move to focus on decision usefulness rather than specifically on economic decision making was a means to subsume stewardship in the objective of financial reporting, authors such as Andrew Lennard still argue that stewardship and decision usefulness should be signalized as separate objectives.stewardship contributes an big dimension to financial reporting, which should be ref lected by specific ac companionshipment in the objectives of financial reporting.1The majority of the authors who recognise stewardship as a fundamental objective in financial reporting, claim that financial statements should be on the watch on the basis of historical costs. This ensures in providing a clear, factual account of the transactions that occurred during the year, over which concern had control. Thus reporting on historical cost squirt aid shareholders accomplish their stewardship assessment need better.On the other hand, to cater for decision usefulness, curiously in terms of economic decision making, financial reporting would focus more on the forecasting of future cash flows. Such objective would be better addressed with valuations based on securities industry apprises, since they better reflect the timing and certainty of future cash flows. This is leading to the emergence of valuation techniques based on authoritative nourishs, such as sensible value.The ad option of clean value accounting is perhaps one of the most controversial issues currently creation faced by the accountancy world. Both the IASB and the FASB have been working on this issue for the last tally years. Traditionally, financial reporting has been exclusively based on historical costs. The use of current values, such as fair value reporting emerged relatively recently, and was applied to only few selected areas. One of the areas where fair value had a major influence is in the criterion of financial instrument. Using market values to value Financial Instruments is deemed to be reliable (since markets in these items are well developed) and relevant (because the values of financial instruments great deal experience large fluctuations, thus historical costs depicts a very poor picture of current values). However, in the nearby future, fair value measurement is likely to be extended to other assets, especially in the light of the fact of the IASBs and FASBs perceived p reference for fair value measurement even where the market is not well developed.The IASB believes that fair value measurement under IFRS and GAAP is already consistent. Also, the IASB and the FASB will tolerate to work together to ensure that applying fair value in an inactive market is accounted for consistently2.Shareholders are divided into two main categories, private individuals and institutional investors. Although financial reporting is designed to cater for the call for of capital providers, collectible to the lack of knowledge commonly found within private individual shareholders, concerns may arise on what such private individual shareholders identify as useful, for their decision making.Need for the find outThe disquisitions objective is to identify the current needs of private shareholders and what they identify as valuable information. The dissertation shall then(prenominal) examine to what extent the focus on decision usefulness and the forecasting of future c ash flows by means of fair value accounting shall aid private shareholders in satisfying their requirements.Research MethodologyThe dissertation will be of a qualitative nature. The aim of such dissertation is to achieve a bass understanding of what local private shareholders value as relevant information, and to examine whether the emerging concept of fair value accounting will be providing such users more relevant accounting information. The aim of the try is not to generalise findings but to obtain rich description on the underlying topic.The method being taken into consideration to gather the qualitative data is the setting up of focus roots with shareholders. Such group discussions provide direct evidence about similarities and differences in participants opinions. Participants are not required to answer for both question enabling them to build on one anothers response. Furthermore by acting as a moderator I can ensure that the discussion is always kept on track.Finally, f ocus groups can be considered as a more plausible solution when compared to open ended interviews with shareholders. The response rate of shareholders to a focus group is likely to be greater when compared to a personal one on one interview, since the latter is perceived as more intrusive. The main limitation of using focus groups is perhaps the take a chance that people influence each others response. As a result the response of participants can be unalike than the response that would have been generated from a private one on one interview.Shareholders from two local, listed companies are exhalation to be considered as the population sample. These companies are Bank of Valletta and HSBC. The choice fell on these companies because due to the recent changes to IAS 39 and IFRS 7, fair value measurement had a considerable impact on the banking sector. Thereby, due to such fact shareholders can be even more concerned and affected with the underlying subject. deuce focus groups are pl anned to be set, one with BOV shareholders and one with HSBC shareholders, with groups ranging from six to twelve members. Shareholders list can be obtained from the Malta Financial Services Authority. The sampled population will exclude overseas shareholders, trusts and investment companies, thus focusing solely on local private shareholders.Chapters OverviewIntroduction firstly the stewardship versus economic decision making reflect will be tackled, and its effects on valuation on financial reporting will be analysed. The dissertation shall then focus on the emergence of fair value as a measurement tool and its prospective usage. Furthermore fair value will be compared and contrasted with cost based valuation. The asylum will also include an examination of how each valuation method caters for the individual private shareholders requirements. publications Review literature review can be focused on two aspects being the debate of fair value measurement versus cost based measuremen t, and the debate of whether private shareholders use accounting information mostly for economic decision making, or to assess stewardship.Research Methodology in this section I shall describe how the results were achieved, explaining how the data was collected and analyzed. This section shall contain the weaknesses and limitations of the research methods and methodology used. In the methodology I shall also include any problems that I anticipated and explain any steps taken to delay them from occurring.Findings this part of dissertation will contain the information generated from the focus groups. Results will be presented, interpreted and discussed in this section.Conclusion this part will provide concluding insights on the research, and recommendations of other research questions that can be tackled to improve the research on the area. The main questions to be answered in this section are what has been learnt from the results? How can this knowledge be used? What are the shortco mings of the research?BibliographyAccounting Standards Board. (2007). STEWARDSHIP/ACCOUNTABILITY AS AN OBJECTIVE OF FINANCIAL reportage A comment on the IASB/FASB Conceptual Framework Project. UK Accounting Standards Board.Alan Bryman, E. B. (2007). Business Research Methods 2 edition. UK Oxford University Press.Doron Nissim, S. P. (2007). ON THE APPLICATION OF FAIR VALUE ACCOUNTING. Columbia Univesity.Lennard, A. (2008). Stewardship and the objectives of financial statements a comment on IASBs Preliminary Views on an improved Conceptual Framework for Financial Reporting. UK Accounting Standards Board.RONEN, J. (2008). To handsome Value or Not to plumb Value A Broader Perspective. Accounting Foundation , Sydney.Schmidt, S. (2004). Fair Value Accounting. US Governors of Federal Reserve System.Whittington, G. (2008). Fair Value and the IASB/FASB Conceptual Framework Project An Alternative View . Cambridge University of Cambridge.