LECTURE – 3
Various users of financial information and their
requirement for financial statements
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LECTURE OUTCOMES
Clarity about
various users and
their needs of
Accounting
information
Owner
Internal Manager
Employee
Investors
Users
Lenders
Suppliers
Customers
External
Tax Authorities
Government
Auditor
Public
Owners
Internal Manager
Employee
Investors
Users
Owners
Lenders
Owners need to assess how well their
business is performing.
Suppliers
Financial statements provide information
to owners about the profitability of
Customers
the overall business as well as individual
External
Tax Authorities
products and geographic segments.
Government
Auditor
Public
Owners
Internal Manager
Owners are also interested in knowing
Employee
how risky their business is.
Accounting information helps owners in
Investors
assessing the level of stability in business
Users
over the years and to what extent have
Lenders
changes in economic factors affected the
bottom line of the business.
Suppliers
Such information helps owners to decide
if they should invest any further in the
Customers
business or if they should use their
External
financial resources elsewhere in more
Tax Authorities
promising business ventures.
Government
Auditor
Public
Owner
Internal Manager
Employee
Investors
Users
Managers
Lenders
Managers need accounting information to
plan, monitor and make business
Suppliers
decisions.
Managers need to allocate the financial,
Customers
human and capital resources towards
External
Tax Authorities
competing needs of the business through
the budgeting process.
Government
Auditor
Public
Owner
Internal Manager
Employee Preparing and monitoring budgets
effectively requires reliable accounting
Investors data relating to the various activities,
Users
processes, products, services, segments
Lenders and departments of the business.
Management requires accounting
Suppliers information to monitor the performance
of business by comparison against past
Customers performance, competitor analysis, key
External performance indicators and industry
Tax Authorities benchmarks.
Government
Auditor
Public
Owner
Internal Manager
Employee
Managers rely on accounting data to form
Investors their business decisions such as
Users
investment, financing and pricing
Lenders decisions.
In case of investment decisions for
Suppliers example, managers would require
the return-on-investment calculation of a
Customers proposed project supported by reliable
External estimates of the costs and revenues.
Tax Authorities
Government
Auditor
Public
Owner
Internal Manager
Employee
Investors
Users
Employees
Lenders
For the employees operating in the
finance department, using accounting
Suppliers
information is usually part of their job
description. This includes for example
Customers
preparing and reviewing various financial
External
Tax Authorities
reports such as financial statements.
Government
Auditor
Public
Owner
Internal Manager
Employee
Investors
Users
Employees are interested in knowing how
Lenders well a company is performing as it could
have implications for their job security
Suppliers and income.
Many employees review accounting
Customers information in the annual report just to
External get a better understanding of the
Tax Authorities company’s business.
Government
Auditor
Public
Owner
Internal Manager
Employee
Investors In recent years, the increase in number of
Users
shares and share options schemes for
Lenders employees particularly in startups has
fostered a greater level of interest in
Suppliers accounting information by employees.
Moreover, potential employees are also
Customers interested to learn about the financial
External health of the organization they aspire to
Tax Authorities join in the future.
Government
Auditor
Public
Owner
Internal Manager
Employee
Investors
Users
Lenders Investors
Investors need to know how well their
Suppliers investment is performing. Investors
primarily rely on the financial statements
Customers published by companies to assess the
External profitability, valuation and risk of their
Tax Authorities investment.
Government
Auditor
Public
Owner
Internal Manager
Employee
Investors
Users
Lenders
Investors use accounting information to
determine whether an investment is a
Suppliers
good fit for their portfolio and whether
they should hold, increase or decrease
Customers
their investment.
External
Tax Authorities
Government
Auditor
Public
Owner
Internal Manager
Employee
Investors
Users
Lendors
Lenders Lenders use accounting information of
borrowers to assess their credit
Suppliers worthiness, i.e. their ability to pay back
any loan.
Customers Lenders offer loans and other credit
External facilities on terms that are based on the
Tax Authorities assessment of financial health of
borrowers.
Government
Auditor
Public
Owner
Internal Manager
Employee Good financial health is indicated by the
borrower’s ability to pay its liabilities on
Investors time, high profitability, substantial
Users
securable assets and liquidity.
Lenders Poor liquidity, low profitability, lack of
assets that can be secured and an inability
Suppliers to pay liabilities on time demonstrate
poor financial health of borrowers.
Customers On a lighter note, borrowers can only get
External a loan from lenders if they can prove that
Tax Authorities they don’t need the money.
Government
Auditor
Public
Owner
Internal Manager
Employee
Investors
Users
Lenders
Suppliers
Suppliers Just like lenders, suppliers need
accounting information to assess the
Customers credit-worthiness of its customers before
External offering goods and services on credit.
Tax Authorities
Government
Auditor
Public
Owner
Internal Manager
Employee
Investors
Users
Some suppliers only have a handful of
Lenders customers. These customers could be
very large businesses themselves.
Suppliers Suppliers need accounting information of
its key customers to assess whether their
Customers business is in good health which is
External necessary for sustainable business
Tax Authorities growth.
Government
Auditor
Public
Owner
Internal Manager
Employee
Investors
Users
Lenders
Customers
Suppliers
Most consumers don’t care about the
financial information of its suppliers.
Customers
External
Tax Authorities
Government
Auditor
Public
Owner
Internal Manager
Employee
Investors
Users
Industrial consumers however need
Lenders
accounting information about its
suppliers in order to assess whether they
Suppliers
have the required resources that are
necessary for a steady supply of goods or
Customers
services in the future. Continuity in
External
Tax Authorities
supply of quality inputs is essential for
any business.
Government
Auditor
Public
Owner
Internal Manager
Employee
Investors
Users
Lenders
Tax Authorities
Suppliers
Tax authorities determine whether a
business declared the correct amount of
Customers
tax in its tax returns.
External
Tax Authorities
Government
Auditor
Public
Owner
Internal Manager
Employee
Investors
Occasionally, tax authorities conduct
Users
audits of the tax returns filed by
Lenders
businesses in order to verify the
information with the underlying
Suppliers
accounting records.
Tax authorities also cross reference
Customers
accounting information of suppliers and
External
Tax Authorities
consumers in order to identify potential
tax evaders.
Government
Auditor
Public
Owner
Internal Manager
Employee
Investors
Users
Government
Lenders Government defines and monitors
accounting thresholds such as sales
Suppliers revenue and net profit to determine the
size of each business for the purpose of
Customers ensuring that it complies with the
External relevant employee, consumer and safety
Tax Authorities regulations.
Government
Auditor
Public
Owner
Internal Manager
Employee
Investors
Auditors
Users
External auditors examine the financial
Lenders
statements and the underlying accounting
record of businesses in order to form an
Suppliers
audit opinion.
Investors and other stakeholders rely on
Customers
the independent opinion of external
External
Tax Authorities
auditors on the accuracy of financial
statements.
Government
Auditor
Public
Owner
Internal Manager
Employee
Investors
Users
Lenders Public
General public may also be interested in
Suppliers accounting information of a company.
These could include journalists, analysts,
Customers academics, activists and individuals with
External an interest in economic developments.
Tax Authorities
Government
Auditor
Public
MCQ
◦ Accounting furnishes data on
◦ A) Income and cost for the managers
◦ B) Financial conditions of the institutions
◦ C) Company’s tax liability for a particular year
◦ D) All the above
◦ Accounting furnishes data on
◦ A) Income and cost for the managers
◦ B) Financial conditions of the institutions
◦ C) Company’s tax liability for a particular year
◦ D) All the above
Users of accounting information include ____________.
◦ A) Tax Authorities
◦ B) Investors
◦ C) Creditors
◦ D) All of these
Users of accounting information include ____________.
◦ A) Tax Authorities
◦ B) Investors
◦ C) Creditors
◦ D) All of these
◦ Which of the following user groups required the most detailed
financial information?
◦ (a) Lenders
◦ (b) Investor and potential investors
◦ (c) Government agencies
◦ (d) The management
◦ Which of the following user groups required the most detailed
financial information?
◦ (a) Lenders
◦ (b) Investor and potential investors
◦ (c) Government agencies
◦ (d) The management
◦ Which of the following statement is true about purpose of accounting?
◦ (a) The purpose of accounting provide information to manager
◦ (b) Accounting purpose gives quantitative information to economic
decision makers
◦ (c) Provision of base for decision making is purpose of accounting
◦ (d) All of above statement are true regarding purpose of accounting
◦ Which of the following statement is true about purpose of accounting?
◦ (a) The purpose of accounting provide information to manager
◦ (b) Accounting purpose gives quantitative information to economic
decision makers
◦ (c) Provision of base for decision making is purpose of accounting
◦ (d) All of above statement are true regarding purpose of accounting
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