Name: Class:______________________ Date:___________________

TOPIC NOTES
USERS OF ACCOUNTING
INFORMATION

Till now we have learnt how businesses work and the importance of accounting in a business.

But what is Accountancy?

Accountancy, or accounting, is the process of communicating financial information about a

business entity to users such as shareholders and managers.

(Elliot, Barry & Elliot, Jamie, 2004)

Financial information is necessary for decisions to be taken by managers. Although

management is one important user of accounting information, they are not the only ones
who require such information.

Who are the users of accounting information?

Internal Users

1. Owners / Shareholders
- The owners of the business are the reason why the business exists. Normally they
need accounting information to assess the financial performance (profit or loss) and
the financial position of the firm.

2. Management
- Management needs accounting information to evaluate the performance of the
business and suggest ways how the business can be improved.

3. Employees
- As their salaries and bonuses depend on the position and performance of the
business they require information to know if staying in a particular firm is
worthwhile or whether they should seek another employment. They want to assess
how much profit the business has made to determine their job security, their future
pay and other employment opportunities.

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 External Users

1. Prospective investors
- Accounting information will help prospective investors to decide whether to invest
or not in the business.

2. Creditors / Suppliers
- Suppliers provide the business with the items required to run the actual business.
As majority of the transactions with the suppliers are on credit, these creditors will
want to ensure that the business will be able to pay them back the money owed to
them.

3. Lenders
- These are usually financial institutions like Banks. They are also interested in
accounting information of the business to know whether they will get paid back on
time.

4. Customers
- These users rely on the business to satisfy their needs. They are interested in
knowing if the business can provide goods on regular basis without any interruption.

5. Government and Regulatory Authorities

- They need accounting information to ensure that the business is in accordance with
the rules and regulations and that it protects the interests of the other users who
rely on such information. The government would also want to know whether the
business is and will continue paying taxes.

6. Competitors
- They are interested in the accounting information to know about any developments
and changes that have been made in the products and services of competing
businesses so that they can also adjust their strategy and compete with the firm.

7. General public
- General public would want to know about the objectives of the business and how
these may affect their lives. Businesses have an obligation to take care of the
society and the environment, for example by taking measures to reduce pollution
caused by the business operations. Such information is included by the company in
the financial statements it publishes.

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