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ACCA Applied Knowledge · Financial Accounting · Stakeholders' needs

Zeta Co's directors are assessed by shareholders on how well they have protected and used the entity's assets during the year. Which concept of financial reporting does this describe, and which information mainly supports it?

This describes stewardship, meaning management's accountability for the resources entrusted to it. Information about how efficiently and effectively management has used those resources, such as returns and asset use, helps shareholders assess management. Prudence, materiality and going concern address different matters.

  1. AStewardship, supported by information on how efficiently and effectively management has used the entity's resourcesCorrect
  2. BPrudence, supported by information on the entity's forecast liquidation values
  3. CMateriality, supported by information on transactions above a set monetary limit
  4. DGoing concern, supported by information on the entity's bank covenants only

Explanation

Stewardship is management's accountability for the entity's resources. The Framework says information about management's use of resources helps users assess it. Prudence, materiality and going concern are different ideas and do not describe assessing directors' use of assets.

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