Question

Question 1 - 750 words Financial reports (and the conceptual frameworks on which they are based) can either embrace a ‘decision usefulness’ or ‘stewardship’ function. Define these two terms. Which of these functions has the IASB deemed more important in recent years? Critically evaluate whether the approach adopted by the IASB will lead to the provision of relevant and/or reliable information for all users.

Answer 1

Decision usefullness: Investors, creditors, shareholders and banks rely heavily upon the information provided in the financial reports. To ensure that financial reports give information which is relevant to these stakeholders, various standards have been set up over the time. A financial report is sait to be giving useful information when it enhances its comparablity, verifiablity, timeliness and understandablity

Stweardship: The primary users need information about the resources of the entity not only to assess an entity's prospects for future net cash inflows but also how effectively and efficiently management has discharged their responsibilities to use the entity's existing resources ( as per para [1.3-1.4] of chapter 1 of framework

After the fall of Enron and WorldCom, emphasis has been given on stewardship as the useful information which is incorrect is of harm to the stakeholders rather a good. Stewarsship ensures management understands their responsibilities and act accordingly.

In my opinion, steps taken by IASB are quite appreciable for the reason that we have seen no such fraud case after the two falls of Enron and WorldCom. However. Information disclosures in the form of notes to accounts of the FS do help investors in making rationale decisions but still it is of little help to users who are not equiped with the knowledge required to decipher the FR. It is thus required that IASB should also make provisions which require company to give a idea about the importance of the particular figure in the report of the company and what does it imply rather just reporting the figure.

Please frame final answer based upon this. Thanks