Stamp Report (Canada)

The Canadian Institute of Chartered Accountants (CICA) published a report in June 1980 on ‘Corporate Reporting: Its Future Evolution’ which was written by Edward Stamp.

Important objectives of company financial reporting:

• It is an objective of good financial reporting to provide such information in such a form as to minimise uncertainty about the validity of information, and to enable the user to make his own assessment of the risks associated with the enterprise.
• One of the primary objectives of published corporate financial reports is to provide an accounting by management to both equity and debt investors, not only a management’s exercise of its stewardship function but also of its success (or otherwise) in achieving the goal of producing a satisfactory economic performance by the enterprise and maintaining it in a strong and healthy financial position.
• The objectives of financial reporting should be taken to be directed towards the need of users who are capable of comprehending a complete (and necessarily sophisticated) set of financial statements or alternatively, to the needs of experts who will be called on by the unsophisticated users to advise them.
• It is necessary that the standards governing financial reporting should have ample scope for innovation and evolution as improvements become feasible.

The Stamp Report has not found FASB’s Conceptual Framework and objectives on financial reporting suitable and useful for Canada because of the environmental difference between USA and Canada. This is true not only in case of any particular country but applicable equally to other countries as well.

Financial reporting  its objectives and scope  are influenced by the economic, legal, political, institutional and social factors prevailing in a country. Therefore, these factors need to be considered before developing financial reporting objectives in any country.

Users in Financial Reporting:

The company financial reporting is intended to provide external users information that is useful in making business and economic decisions, that is, for making reasoned choices among alternative uses of scarce resources in the conduct of business and economic activities. Thus, users are potentially interested in the information provided by financial reporting.

Among the potential users are owners, lenders, suppliers, potential investors and creditors, employees, management, directors, customers, financial analysts and advisors, brokers, stock exchanges, lawyers, economists, taxing authorities, regulatory authorities, legislators, financial press and reporting agencies, labour unions, trade associations, business researchers, teachers and students, and the public.

Some users such as owners, creditors, and employees have or contemplate having direct economic interests in particular business enterprises. Managers and directors, who are charged with managing the enterprise in the interest of owners, also have a direct interest.

Some users  such as financial analysts and advisors, regulatory authorities, and labour unions have indirect interests because they advise or represent those who have or contemplate have direct interests.

Potential users of financial information most directly concerned with a particular business enterprise are generally interested in its ability to generate favourable cash flows because their decisions relate to amounts, timing, and uncertainties of expected cash flows.

To investors, lenders, suppliers, and employees, a business enterprise is a source of cash in the form of dividends or interest and, perhaps, appreciated market price, repayment of borrowing, payment of goods or services, or salaries or wages.

They invest cash, goods, or service in an enterprise and expect to obtain sufficient cash in return to make the investment worthwhile. To customers, a business enterprise is a source of goods or services, but only by obtaining sufficient cash, to pay for the resources it uses and to meet its other obligations, can the enterprise provide those goods or services.

To managers, the cash flows of a business enterprise are a significant part of their management responsibilities, including their accountability to directors and owners. Many, if not most, of their decisions have cash flow consequences for the enterprise.

Thus, investors, creditors, employees, customers, and managers significantly share a common interest in an enterprise’s ability to generate favourable cash flows. Other potential users of financial information share the same interest, derived from investors; creditors, employees, customers, or managers whom they advise or represent or derived from an interest in how those groups (and especially shareholders) are fair.

Some of the potential users listed above may have specialised needs but also have the power to obtain the information needed. For example, the information needed to enforce tax laws and regulations are specialised needs.

However, although the taxing authorities often use the information in financial statements for their purposes, they also have statutory authority to require the specific information they need to fulfill their functions, and do not need to rely on information provided to other groups.

Some investors and creditors or potential investors and creditors may also be able to require a business enterprise to provide specified information to meet a particular need. For example, a bank or insurance company negotiating with an enterprise for a large loan or purchase of securities can often obtain desired information by making the information a condition for completing the loan transaction.

Some users of financial information can obtain more information about an enterprise than others. This is clearly so for managers, but it also holds true for others, such as large scale equity shareholders and creditors. Financial statements are, it is argued, especially important to those who have limited access to information and limited ability to interpret it.