In June 2007 the European Financial Reporting Advisory Group (EFRAG), the ASB and a number of other European standard-setters published a paper discussing the rationale for including stewardship as a separate objective of financial reporting. Project Director Seema Jamil-O'Neill explains the background.

The International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB) proposed in their July 2006 Discussion Paper (DP) Preliminary Views on an improved Conceptual Framework for Financial Reporting that the converged framework should specify only one objective of financial reporting, that of resource allocation decision-usefulness. The DP argued that this objective "encompasses providing information useful in assessing management's stewardship".

Although a majority of the IASB and FASB respondents were in favour of identifying stewardship as an objective of financial reporting there has been a view expressed that the comment letters contain a number of different interpretations of the term 'stewardship'; this implies that if there was more of a consensus the respondents' view on stewardship would carry more weight.

Another view is that the implications of keeping stewardship as a separate objective of financial reporting are not obvious and that some examples of its impact on financial reporting are required to demonstrate the point. This paper was drafted as a response to these views. A part of the research conducted included a detailed review of the comment letters received by the IASB and FASB to ascertain whether these claims are an accurate summation of the respondents' views.

The paper demonstrates that:

• there is consensus amongst respondents on their view of stewardship/ accountability as a central plank of financial reporting;
• stewardship/accountability is inherently linked to agency theory and is a broader notion than resource allocation decisionmaking as it focuses on both past performance and potential future direction;
• stewardship/accountability is required as a separate objective of financial reporting to ensure that there is appropriate emphasis on company performance as a whole and not just on potential future cash flow; and
• stewardship/accountability has implications for financial reporting which can be demonstrated by way of examples. However, these implications cannot be discussed meaningfully without some references to wider issues including recognition and measurement criteria.

The paper has been prepared under the 'Proactive Accounting Activities in Europe' (PAAinE) initiative, in which EFRAG and European standard-stters have agreed to pool some of their resources and work together more closely so that Europe as a whole can participate more effectively in the global accounting debate. The accounting standard-setters of Germany, Denmark, Italy, France and Poland are joint issuers of the paper with EFRAG and the ASB. A number of others (Sweden and the Netherlands) have made the paper available on their websites.

A copy of the paper has been sent to the IASB and FASB. The text of the paper is available for download from the ASB website at www.frc.org.uk/asb and EFRAG's website at www.efrag.org.