The International Accounting Standards Board (IASB) conceptual framework of 2018 is the underlying set of ideas behind the IASB financial reporting standards. It provides some of the basic concepts and principles upon which financial statement preparation and presentation are based (Gornik-Tomaszewski & Choi, 2018). It is also used to improve standards and develop new concepts to help resolve some of the inconsistencies and imperfections of the existing system.
While the framework is important to the creation of the IASB standard, it is not a substitute for any set of standards utilized in any country. IASB’s framework concerns itself with numerous matters, such as the objectives of financial statements, underlying assumptions, qualitative characteristics, elements of financial statements, as well as their measurements and recognition (Gornik-Tomaszewski & Choi, 2018). One of its governing principles in it is the idea of stewardship and accountability (Gornik-Tomaszewski & Choi, 2018). Despite being present in nearly every aspect of the framework, stewardship is not separated to be an objective of its own. The purpose of this paper is to discuss the implications and validity of IASB reasoning to maintain it as such.
Stewardship as a Principle and not Objective
One of the important principles of the IASB framework is the concept of stewardship. In accounting and financial statement preparation, stewardship is identified as an ethical responsibility of the managers and financial information providers to take care of the business and offer reliable and accurate information to stakeholders about resources available to the enterprise (Pelger, 2020). It is necessary to make prudent and informed resource allocation decisions. The concept of stewardship was left unchanged by the IASB in the revised version of 2018.
One of the common points of concern for the IASB framework is the lack of explicit referencing of the concepts of stewardship in the objectives of financial reporting. It is suggested that if stewardship is allowed to remain without its validation supported by objectives, it will not be considered an important concern when the IASB framework is being utilized to create new standards or correct existing issues (Pelger, 2020). This argument, however, frames the debate in a single set of coordinates, which are not absolute. The primary general-purpose of accountability and transparency is to provide capital providers with accurate and understandable information, which matches the general purpose of financial statements in the first place (IFAC, 2018).
Therefore, stewardship should be isolated within the parameters of a single objective – it has to be the underpinning idea behind judgments made in regard to the financial statements. One of the main issues in the current state of affairs is the perceived disclosure overload. The IASB sustains that these issues cannot be resolved without rethinking how decisions are made across the entire supply chain (Pelger, 2020). To do that, stewardship needs to be much more than simply a requirement to be complied with, but rather a philosophy.
The reason why IASB retained the concept of stewardship across the framework instead of allocating it into a single objective is that the organization views it as beyond the current understanding of the concept. IASB wants it to generally inform the public on how to prepare financial statements (Pelger, 2020). Due to the general nature of the idea, it cannot be subsumed as a general desire of users to understand the reporting entity’s capacity to generate future cash flows (Pelger, 2020).
Finally, the notion can be perceived as a well-accepted principle of governance that can be supported by many regulations in different countries, thus increasing IASB’s appropriateness in many jurisdictions (IFAC, 2018). Turning it into a well-defined objective would make it inapplicable in various parts of the world due to philosophical and translational issues.
Another reason why stewardship should not be a framed objective lies in the very purpose of the IASB framework. It is to extend and clarify the principles behind international financial reporting standards. Principles are difficult to frame as objectives because the latter would need to find a way of being measured and quantified, which is difficult to accomplish with non-materialistic elements (IFAC, 2018). While some of the criticisms levied against the IASB state that the descriptive (versus prescriptive) framework makes it difficult to advance or enact changes, these claims are inaccurate due to the fact that whenever IASB was applied, it almost always resulted in a net improvement of financial reporting (IFAC, 2018). Thus, stewardship accomplishes its purpose as an underpinning principle without the need of being transformed into an objective.
IASB framework regulates and presents the underlying ideas behind international financial reporting standards. It has achieved improvements throughout the systems where it has been implemented. Stewardship is identified as an ethical responsibility to provide accurate information to stakeholders to improve decision-making. The paper sustains that stewardship should not be a well-defined objective but rather an overarching principle that is automatically applied to all aspects of accounting and financial reporting. Since IASB has been implemented well with the existing view on stewardship, it would be prudent to keep it that way until a genuine need for improvement arises.
Gornik-Tomaszewski, S., & Choi, Y. C. (2018). The conceptual framework: Past, present, and future. Review of Business, 38(1), 47-58.
International Federation of Accountants (IFAC). (2018). IFAC response to the IASB discussion paper, a review of the conceptual framework for financial reporting. Web.
Pelger, C. (2020). The return of stewardship, reliability and prudence–a commentary on the IASB’s new conceptual framework. Accounting in Europe, 17(1), 33-51.