Financial statements of a company Essay Example | Topics and Well Written Essays - 1500 words

Financial statements of a company - Essay Example Center of discussion in this paper is Stewardship as the ethical responsibility of the managers to effectively and honestly manage the resources of the firm. Managers therefore are considered as stewards of the firm however, managers are also considered as self-interested individuals who can pursue their own objectives too. Such tendency of the managers therefore requires that the shareholders must use company financial statements to ensure that the managers are performing their stewardship duty. Through techniques such as financial ratio analysis, shareholders can actually look into the overall performance of the managers and decide whether such performance is actually according to the ability of managers. If assessed performance is considered as below-par it may be concluded that the managers may not be fulfilling their responsibility. Agency Theory outlines that there may be conflict of interest between the shareholders and managers of the firm. The basic objective of managers is to ensure that they act in a manner which always results into an increase in the value for shareholders. This therefore requires that the managers must actively pursue the objective of maximizing shareholders wealth. This objective however, may be jeopardized as the managers may take actions which only result into their own benefits and may not entirely result into creation of value for the shareholders. For example, managers may make decisions to increase their compensation or earnings regardless of the fact that such actions may damage the overall shareholder interest in short or long run. Such conflict of interest therefore outlines that the managers must have been kept on watch in order to ensure that their actions do not result into losses for shareholders. It is because of this reason that the theories of corporate governance have been forwarded to design a framework which can ensure that the managers must act in a certain manner. This is for ensuring that the overall interest s of the shareholders are protected while at the same time ensuring that the managers get substantial authority to pursue such objectives. (Cane, 2008) An opposite to Agency theory is the theory of stewardship which requires the shareholders to basically to assume the roles of managers. Through active participation of shareholders, it may be possible to have an effective check over the actions of managers. Managerial Stewardship Stewardship as a concept has some ethical considerations because it embodies the ethical responsibilities of the management to responsibly plan and manage the resources of the firm. From accounting and finance perspectives, managers therefore are considered as the custodians of the firm’s resources and it is their professional and ethical responsibility to ensure that they plan and manage resources in the best of the interest of the organization and hence its shareholders. It has been however, outlined that the overall research on understanding the st ewardship and the role of mangers have been limited. It is also because of this reason that the accounting standard setters face dearth of information which can further strengthen the stewardship ability of the managers. Stewardship theory therefore outlines that the managers are stewards rather than rational individuals having their own self