Users of Accounting

Information
The outside parties are the main
sources of income and/or funds that
are a key factors in determining if a
business will be profitable or not.
How can a business continue to
capture the interest of such groups?
• According to Conceptual Framework for
Financial reporting the users of financial
information may be classified into two,
namely:
– Primary Users
– Other Users
Primary Users
• Are parties to whom general purpose financial reports
are primarily directed.
• Such users cannot require reporting entities to provide
information directly to them and therefore must rely on
general purpose financial reports for much of the
financial information they need.
• These are:
– Existing and potential Investors
– Lenders or Creditors
Other Users
• Are users of financial information other than the existing
and potential investors, lenders and other creditors.
They are parties that may find the general purpose
financial reports useful but the reports are not directed
to them.
• These are:
– Employees
– Customers
– Government and their agencies
– Public
– Suppliers
Users of Accounting information can be also
grouped into either External or Internal users.

External Users Internal Users

• Customers • Suppliers • Owners
• Creditors • Labor union • Stockholders
• Potential
• Management
investors
• Government • Employees
agencies
• Public
External Users
• Are individuals and others that have
current or potential financial interest in the
reporting entity but are not involved in the
daily operations of the entity. The
information needs of theses users are
diverse so that only the primary or the
general purpose financial statements are
provided. Their information needs is served
by financial accounting.
Customers
• Definition:
– They are the main source of income of
businesses; acquire goods and services for a
fee.
• Decisions made/Benefits from Accounting information:
– Whether or not to build relationship with the
business, to have any dealings with the
business.
Creditors
• Definition:
– Providers of additional funds when the initial
investment of owners is exhausted; lend
resources to business usually in the form of
money.
• Decisions made/Benefits from Accounting information:
– Whether or not to lend resources to the
business, try to see if the business is not very
risky before lending funds.
Creditors
• Three main factors considered by creditors
before lending to a company:
– Riskiness of lending
– Profitability of the company
– Company’s amount of borrowings
Potential Investors
• Definition:
– Providers of additional funds when the initial
investment of owners is exhausted, invest
resources in the business hoping to earn
decent returns.
• Decisions made/Benefits from Accounting information:
– Whether or not to lend resources to the
business, primary concern is the ability of the
business to provide acceptable returns.
Government
• Definition:
– Primary role is to regulate business; studies
financial statements to determine amount of
taxes payable..
• Decisions made/Benefits from Accounting information:
– Oversees business operations with the end
goal of improving the economy; checks the
accuracy of the financial statements to
compute for the correct amount of taxes
payable.
Academe
• Definition:
– Uses accounting information primarily for
academic purpose.
• Decisions made/Benefits from Accounting information:
– Uses accounting information in the teaching
of accountancy; researches loopholes and
possible improvements in the field of
accountancy.
General Public
• Definition:
– Citizen and residents of the country even
though they do not plan to transact with the
business; use financial statements to gauge
the condition of the economy.
• Decisions made/Benefits from Accounting information:
– Concerned with the overall performance of
the economy; use financial information to
estimate economic performance.
Suppliers
• Definition:
– An entity that supplies goods and services to
another organzition.
• Decisions made/Benefits from Accounting information:
– Interested in information that enables them to
determine whether amounts owning to them
will be paid when due.
Internal Users
• These employees have different
specific goals that are designed to
help the entity attain its overall
strategies and mission. Management
accountants design use an
information system that primarily helps
in planning and control decisions.
Management
• Definition:
– Employees that can make decisions for the
company; considered as the brain of the
company.
• Decisions made/Benefits from Accounting information:
– Uses financial information in making business
decisions; allows management to identify
problems immediately and to respond
accordingly.
Employees
• Definition:
– Persons in the company aside from managers
and owners or stockholders; do not have
authority to implement decisions.
• Decisions made/Benefits from Accounting information:
– Check if business is profitable enough to
provide compensation and other benefits.
Owners/Stockholders
• Definition:
– Existing investors of the company; concerned
mostly with the profits of the company.
• Decisions made/Benefits from Accounting information:
– Mainly concerned with the returns earned
from their investments; owners taking active
roles in the operations of the business; also
make decisions.
Assignment:
• What are the forms of business
organizations?
– Give their definition
– Advantages and disadvantages.