Users of Accounting Information And Their Information Needs

There are many users of the financial statements produced by an organization. The following are the users of financial statements, and the reasons why they need this information:

Management: The management of a company needs financial statements to formulate appropriate policies for the business. The management looks at the profitability, liquidity, cash flows, assets, liabilities, etc. of the company so that they can make operational and financing decisions for the business.

Investors: Investors also known as the shareholders are the owners of the business. Published financial statements enable the shareholders to know the efficiency and effectiveness of the management and also the earning capacity and financial strength of the company. It enables them to decide whether to keep investing or move their investment out of the company based on its performance.

Competitors: Competitors will like to know and evaluate the financial statement of competing companies because they want to maintain a competitive edge on their competitors.

Customers: Customers need to know that a company can continue to supply them into the future, especially if the customer is dependent on the company for specialized supplies. Also, a financially strong company can provide its customers with credit sales and offer discount for products and services.

Employees: Employees want to know how the company is doing as their bonus, increments and the security of their jobs depend on the financial performance of the company.

Governments: A government in whose jurisdiction a company is located will request financial statements in order to determine whether the company paid the appropriate amount of taxes.

Investment analysts: Analysts makes use of financial statements to decide whether they should recommend the company's securities to their clients.

Suppliers/Lenders: Through a critical examination of the financial statements, these groups will know about the liquidity, profitability and long-term solvency position of a company. This helps in determining whether they should extend credit to the company.

Rating agencies: A credit rating agency will need to review the financial statements of a company in order to give a credit rating to the company as a whole or to the securities it is issuing to raise funds.

Unions: A union needs the financial statements in order to evaluate the ability of a business to pay compensation and benefits to the union members that it represents.

General public: The general public is interested in knowing the position and prospects of an entity. They are interested in knowing how an entity may contribute to the local economy. Published financial statements help in increasing the confidence of the public in the entity.

The financial statements of a company have a number of purposes. Different users peruse the company’s financial statements for different purposes.

Users of Accounting Information And Their Information Needs Users of Accounting Information And Their Information Needs Reviewed by proville on 4:16 pm Rating: 5

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