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Stewardship and Accountability in Management

Whenever reporting is done Stewardship comes into the picture. Stewardship is when one feels a commitment to do something as a result of resources managed. When it comes to a profit entity it is a usual scenario when a manager act as an agent for the owner which includes the shareholders. It is also emphasized that besides assessing future cash flows, assessment for stewardship of management plays a crucial role in management’s stewardship which is a key in founding an expectation for future returns, an example can include investment in any entity (Pelger 2020)

Accountability on the other hand can be defined as an affirmation that an individual or an entity will be assessed based on their performance or behaviour that leads to something for which they can be held accountable (techtarget.com, 2022). Accountability also helps in improving the quality of financial reporting of any organization. The goal of accountability serves as the foundation for a meaningful discussion for both management and investors. It illustrates how management makes use of the resources allocated to it. It has also been observed that the Common stockholders are also open to the idea of accountability in the functioning of the organization.

The term financial market is very broad, which generally means a marketplace where market participants include buyers and sellers do trade securities and assets. Example of such securities includes bonds, stocks, shares, commercial papers etc (Borad, 2022).  The financial market plays different roles for the investors or market participants, it offers them a secure place for keeping money and for earning interest. For businesses and individuals, it acts as a middleman for borrowers and savers of funds (tutor2u.net, 2022).

Financial and capital markets have different types these are explained below:

Stock Markets- It is a form of market where entity list their shares and traders and investors do trading of shares.  

The Counter Market- In this market, instead of trading between an agent or broker, trading is conducted directly between two parties and such a market does not have any fixed geographic locations.

Bond Markets- It is a market where new debts can be issued or buying and selling of debt securities can be done. This is generally done in the form of a Bond.

Money Markets- In the money market trading of holdings that have higher liquidities is done which is very safe. Here interest return is also very cheap.

Derivative Markets- Here a contract is generally signed between two or more two parties based on the financial assets or securities.

Forex Market- The Foreign Exchange Market, which is also known as the Forex Market, is a form of market where currency deals are done.

Capital market is basically of two types that include:

Primary Market

It is a market where new securities are issued. It is also called a new issue market since here for the first-time securities are sold.

In this type of market purchases and sales are done for second hand or previously issued securities. Here companies do not directly issue shares to the investors instead existing investors sell their shares to other investors (Bujhansi.ac.in, 2022).

Introduction to Financial Markets

An overview of four different forms of the organization includes the following:

Sole Proprietorship

Sole proprietorships are the cornerstone of forming a vast number of small businesses. These businesses are usually run by a single person, who is also in full control of the day-to-day operations.

A Partnership is an agreement between two or more people who share ownership of one business.   In this form business partners make a legal agreement for making decisions, sharing profit, resolving any disputes as well as how to dissolve the firm if required. 

A corporation is generally a company that has its headquartered in a chartered state and is legally recognized as a distinct organization separate from its owners. 

It is intended to provide the limited liability characteristics of a corporation and also the tax advantages and flexibility of a partnership. The formation of a limited partnership is more complicated and professional than those of a general partnership (baltimoresourcelink.com, 2022).

After analyzing the annual report, we have found that Maaden is a corporation that was established as a joint-stock company in Saudi Arabia.  

According to the IASB Framework the four possible bases for measurement includes the following:

Historical cost- Under this method, when the acquisition takes place, assets are measured at the cash amount paid or at the fair market value of the consideration given to acquire them. On the other hand, Liabilities are recorded at the value of payment received for any obligation.

Current cost- Under this measurement basis Assets are valued at the amount of cash or cash equivalents that might be paid if a similar type of assets will be bought today. Liabilities on the other hand will be valued at the present undiscounted value of cash or cash equivalents that a business is required to pay for settling its obligation.

Realizable value- Assets here are recorded at the present market value of cash or cash equivalents which may be realized by disposing of the asset in a reasonable timeframe whereas liabilities are measured at their settlement values, which are the undiscounted sum of cash or cash equivalents needed to be paid in the regular conduct of the business to pay off the liabilities.

Present value- Under this method, the present discounted figure of net cash inflows which an asset may provide in the course of business will be used to measure the value of assets. However, Liabilities are valued at the present discounted values of future cash outflows which an entity may settle in its regular operation. (Assets.ey.com, 2022).

From the financial statement of Maaden it is revealed that they have used the historical cost method except where another measurement basis is recommended by IFRS (Maaden.com.sa, 2022).

As per IAS 16 Property, Plant and Equipment it is stated that generally two models are used for measuring the accounting treatment of different types of property, plant and equipment. It is initially measured at cost and in its subsequent measurement, it is either measured using Cost models or a revaluation model (Iasplus.com, 2022).

Each of these models has its importance for the entity. If Maaden will use the cost model then the value of assets whose fair value cannot be determined can be made using this model, it is very simple to calculate the cost of the asset. On the other hand, if Maaden will use the revaluation model for its subsequent measurement then the entity can use it for those assets whose fair value gets changed frequently. In addition, the Revaluation model will reflect the actual cost of the assets on the book closing date.  

Different Types of Financial Markets

After analyzing the annual report of Maaden it is found that they use the straight-line method of depreciation on its property plant and equipment.

Share capital generally refers to funds that an organization raises by selling its shares to outside investors. Share capital is basically of two types which are discussed below:

Common stock –The characteristics of the common stock are quite standardized, it provides the right to vote to the holders of the shares in the decision making of the entity including the election of the board of directors, and the adoption of any newly developed provision. At the time of liquidation, the common stockholders get paid after all the claims of creditors get fulfilled.

Preferred stock- It is a type of share where holders of the stock get a fixed amount of dividend from the company. It is essential to pay a dividend to preferred stockholders before distributing dividends to common stockholders. However, the preferred stockholder does not have voting rights in the company’s affairs (Bragg, 2022).

The consolidated balance sheet of Maaden showed that they have issued only common stock or ordinary shares which have a nominal value of SAR 10 per share.

Going concern is usually an accounting assumption that an organization follows while preparing financial statements and any reports for the entity. It is a part of Generally Accepted Accounting Principles. As per the Going concern assumption it is assumed that the organization will continue its business in the near future (Accaglobal.com, 2022). For Maaden it is essential to understand Going concern since it will help the entity to understand how stable their business is carried, it will also help shareholders of the entity to assess business stability, in addition, it would aid in fetching loans for making long term investment and also provide comfort to the creditors of the business.  It is generally the duty of management to assess the going concern of the entity, assessing the going concern principle will also help Maaden to continue to provide their shareholders with returns and benefits.

There are generally two formats of balance sheet used by the business organization this includes the Net assets and horizontal formats or vertical format. While using horizontal format, all assets are shown on the left side and all liabilities are shown on the right side of the balance sheet, this always equals the assets and liabilities of the entity.

On the other hand, in the vertical format of the balance sheet capital is usually shown on the bottom half whereas all assets with liabilities are shown on the top half after deducting liabilities from them net assets are shown this format is also known as the net assets approach. Under IFRS it is also possible for the entity to show all assets in the top half and total liabilities in the bottom half (open.edu, 2022).

For Maaden company it is observed in the annual report that the entity follows a vertical approach of the balance sheet with an accrual assumption basis.

After observing the financial position of Maaden we have found that the organization has performed well during the year 2020 compared to 2019 but it is still a loss-making company due to the challenging effect of the coronavirus pandemic. As shown in the annual report the total assets of the organization had decreased in the year 2020 compared to the previous year. In 2020 Maaden company had pledged some of its property, plant and equipment as security to its lenders amounting to SAR 20,990,652,045. On observing the non-current liabilities of the organization, it is revealed that the non-current liabilities of the entity had shown a decline which is a good sign for the investors. However, after analyzing the current liabilities it is revealed that current liabilities of the entity had increased due to a rise in trade payable balance and increase in accrued expenses of the entity.  During the year 2020, a fresh issue of shares is done for converting long term borrowings, as a result, the share capital increase by 62,112,885 ordinary shares.

 Reference

Accaglobal.com, 2022. Going concern | ACCA Qualification | Students | ACCA Global. [online] Accaglobal.com. Available at: <https://www.accaglobal.com/gb/en/student/exam-support-resources/fundamentals-exams-study-resources/f8/technical-articles/going-concern.html> [Accessed 21 April 2022].

Assets.ey.com, 2022. [online] Assets.ey.com. Available at: <https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/ifrs/ey-applying-conceptual-framework-april2018.pdf?downloa> [Accessed 21 April 2022].

baltimoresourcelink.com, 2022. Forms of Business Organization - Baltimore SourceLink. [online] Baltimore SourceLink. Available at: <https://www.baltimoresourcelink.com/forms-of-business-organization/> [Accessed 21 April 2022].

Borad, S., 2022. Financial Markets – Functions, Importance And Types. [online] eFinanceManagement. Available at: <https://efinancemanagement.com/financial-management/financial-markets-functions-importance-and-types> [Accessed 21 April 2022].

Bragg, S., 2022. Types of share capital — AccountingTools. [online] AccountingTools. Available at: <https://www.accountingtools.com/articles/what-are-the-types-of-share-capital.html> [Accessed 21 April 2022].

Bujhansi.ac.in, 2022. [online] Bujhansi.ac.in. Available at: <https://bujhansi.ac.in/econtent/pages/shortcodes/economics/capital_market.pdf> [Accessed 21 April 2022].

Iasplus.com, 2022. IAS 16 — Property, Plant and Equipment. [online] Iasplus.com. Available at: <https://www.iasplus.com/en/standards/ias/ias16> [Accessed 21 April 2022].

Maaden.com.sa, 2022. [online] Maaden.com.sa. Available at: <https://www.maaden.com.sa/download/2020-Annual-Report-En.pdf> [Accessed 21 April 2022].

open.edu, 2022. Financial accounting and reporting. [online] Financial accounting and reporting. Available at: <https://www.open.edu/openlearn/money-business/financial-accounting-and-reporting/content-section-4.3> [Accessed 21 April 2022].

Pelger, C., 2020. The return of stewardship, reliability and prudence–a commentary on the IASB’s new conceptual framework. Accounting in Europe, 17(1), pp.33-51.

techtarget.com, 2022. What is accountability? - Definition from WhatIs.com. [online] WhatIs.com. Available at: <https://www.techtarget.com/whatis/definition/accountability#:~:text=Accountability%20is%20an%20assurance%20that,from%20the%20perspective%20of%20oversight> [Accessed 21 April 2022].

tutor2u.net, 2022. Key Roles for Financial Markets. [online] tutor2u. Available at: <https://www.tutor2u.net/economics/reference/key-roles-for-financial-markets> [Accessed 21 April 2022].

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