FAM/U1 Topic 3 Users of Accounting
Internal users of Accounting information
Internal users are that individual who runs, manages and operates the daily activities of the inside area of an organization.
- Owners and Stockholders.
- Internal Departments.
- Internal Auditor.
External users of accounting information are:
- Trading partners.
- Regulatory agencies.
- International standardization agencies.
8 Users of Accounting
The primary objective of accounting is to provide necessary information to the owners relating to their business. For example, the shareholders of a company are interested in the accounting information with a view to ascertaining the profitability and financial strength of the company.
In large business organizations there is a separation of the ownership and management functions. The managements of such concerns are more concerned with the accounting information because of their accountability to the owners for better performance of their concerns.
Trade creditors, debenture holders, bankers, and other lending institutions are interested in knowing the short-term as well as long-term position of the company. The financial statements provide the required information for ascertaining such position.
- Regulatory Agencies:
Various governments and other agencies use accounting reports not only as a basis for tax assessment but also in evaluating how well various business concerns are operating under regulatory framework.
Governments all over the world are using financial statements for compiling statistics concerning business units, which, in turn help in compiling national accounts.
- Potential Investors:
Investors use the information in accounting reports to a greater extent in order to determine the relative merits of various investment opportunities.
Employees are interested in the earnings of the enterprise because their pay hike and payment of bonus depend on the size of profits earned.
The research scholars in their research in accounting theory as well as business affairs and practices also use accounting data. In addition, those with indirect concern about business enterprise include financial analysts and advisors, financial press and reporting, trade associations, labour unions, consumers, and public at large. Thus, the list of actual and potential users of accounting information is large.