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ACCA Applied Knowledge · Financial Accounting · The context and purpose of financial statements for external reporting

Zeta Co's directors argue that the financial statements show the directors' stewardship. Which statement correctly explains stewardship in the context of financial reporting?

Stewardship means management is accountable to the providers of capital for how it has used the entity's resources. Financial statements give information that lets users assess that performance. It does not mean guaranteeing profit, valuing assets at market price or merely filing on time.

  1. ADirectors are accountable to the owners for how they have used the resources entrusted to them, and the financial statements help users assess thisCorrect
  2. BDirectors must guarantee that the entity will make a profit every year
  3. CDirectors must value all assets at current market prices to demonstrate stewardship
  4. DStewardship means only that the financial statements are filed with the regulator on time

Explanation

Stewardship is accountability of management for the efficient and proper use of resources provided by investors and lenders. Financial statements give information about this, such as how resources were used and returns generated. No guarantee of profit is implied, and filing alone does not demonstrate stewardship.

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