7 USERS OF ACCOUNTING INFORMATION

Accounting, as defined by the American Accountants Associaton (AAA), is the process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of the information

But, who are the users? What do they need accounting information for? These and more will be answered in this post.

Let's start with the definition of users of accounting information.


Users of financial information are people or organizations who require accounting information for one valid reason or the other.

There are, at least, seven users of accounting information, namely; investors, tax authorities, lenders, management, employees, the general public and government agencies.

Investor

Investors need to make decisions relating to their investment. 

They need to know whether they are getting adequate returns for the risk they are taking when they invest in a company or not 

To make such decisions, they would analyze the financial statements of the company.

Questions such as: should I sell my stocks? Should I hold them? Should I buy more stock? can only be answered through a financial statement.

In the same vein, prospective investors would need the accounting information of a company to help them analyze a company's potential for profitability

Lenders 

Lenders are interested in just one thing: repayment. Before giving out a loan, the lender evaluates the borrower's ability to repay his loan.

To achieve this, they would thoroughly evaluate the financial statement of the borrower to evaluate the borrower's repaying capability. 

Creditors and lenders use accounting information to assess a company's liquidity.

Management/owner

In small businesses like sole proprietorships, the management is usually made up of the owner.

In large businesses like corporations, the management is usually a set of individuals hired to manage, supervise, and oversee the business.

Management, whether in a small business or a large business, needs accounting information to make certain decisions.

Decisions such as marketing, production, and financing can only be made with the help of a financial statement.

Management also needs financial information to determine the strengths and weaknesses of the business to know where more management accounting is needed.

Employees

Like everyone else in the organization, employees also need accounting information. 

An employee requires financial information because his career development opportunities and salaries are highly dependent on it.

Employees need to be so sure that they will continue to receive their salaries and employee benefit. 

So, they analyze their employer's finances to determine if the company can fulfil its short-run and long-run promises and obligations.

Employees also need financial information to determine when to demand an increase in the wage rate. 

Also, employees of other organizations required accounting information for job rating purposes.

Government and its agencies

The government requires financial information for regulatory purposes.

Just as price ceilings are fixed below the equilibrium to be effective, government regulations should be entirely based on accounting information if it is to be effective

After all, there is no point in regulating a company if you know nothing about its financial details.

In the same vein, government agencies like securities and exchange commissions require financial information to be sure that the company is following GAAP and other accounting concepts.

The ultimate goal is to ensure that investors are in safe hands when investing in these companies.

Tax authorities 

As the name suggests, tax authorities are interested in accounting information for tax purposes.

Tax agencies need to be sure that you pay the exact amount of tax that you are supposed to pay. Hence they look at your financial statements.

So, in essence, tax authorities need accounting information to determine the verisimilitude of tax paid.

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The general public

Anyone could be interested in financial information for one valid reason or the other.

Auditors, for example, would need accounting information to determine the authenticity of financial statements.

A financial analyst would need financial information to make the right financial analysis on stocks, and shares.

A financial analyst also needs accounting information to advise the management on how to successfully manage the finance of the business.

Students and journalists may also require financial information for research purposes.

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