ACCA Applied Knowledge · Financial Accounting · The context and purpose of financial statements for external reporting
Zeta Co has directors who run the company on behalf of its shareholders. The shareholders receive the annual financial statements and use them to assess how well the directors have looked after the company's resources. Which term describes this purpose of financial reporting?
The purpose described is stewardship, also called accountability. Directors manage resources owned by shareholders and report on how they have used them through the financial statements, allowing shareholders to assess management performance. Budgetary control, tax planning and cost allocation are not about this reporting relationship.
- AStewardship (accountability)Correct
- BBudgetary control
- CTax planning
- DCost allocation
Explanation
Stewardship or accountability is the responsibility of management to use the entity's resources properly and to report on that use to the owners. Budgetary control and cost allocation are internal management accounting activities. Tax planning is not the purpose described.
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