Parties that relate with any given organization are considered users of accounting information. The data represented by the statements help the users of accounting reports to make prudent and objective personal and/or organizational financial decisions. Therefore, the unique needs of the users of accounting statements or accounting information can only be satisfied by well-designed accounting information systems. In this regard, users of financial accounting, cost accounting, and management accounting reports would be in a position to rely on accountable and transparent data, which is important in the effective and efficient management of organizations.
Importance of Accounting Information to Users
Better financial decisions are made using the data provided by the accounting department of an organization. The users of accounting reports can either be internal or external to an entity.
Internal Users of accounting information
Internal users of financial information are also known as the primary users of accounting statements. This category of users include owners, managers and employees.
The owners or shareholders of an entity need accounting statements, information or reports to assess and make judgments on the performance of their business and determine the level of risk involved. Financial information therefore helps them to establish how stable the business is likely to be over a defined period. Decisions as to whether to continue investing in a given line of business or not also depend on the information presented by the financial reports.
Managers have the mandate of the shareholders in running organizations. The accounting information as outlined by an organization’s accounting statements or reports helps them in focusing on the entity by enhancing the planning and monitoring activities. Prudent and objective decision making by the managers is also informed by these reports. Through the budgeting process, management uses financial data to plan for an entity’s resources whether capital, financial or human. Reliable accounting data aid the preparation and monitoring of the formulated budgets. Financing, investment and pricing decisions also depend on the generated accounting statement information.
An organization’s employees are most concerned about their job or income security. This makes the determination of how a company performs through its financial information or data very important to them. Potential employees are also not left behind in this as it would be valuable for them to determine the financial health of an organization before deciding to work for it.
External users of Accounting Information
External users of financial information are also known as secondary users of accounting information. They range from investors, creditors, suppliers, regulators, the government, auditors, and members of the public.
To be able to decide on whether to invest in a company or not, investors must get access to the focus organization’s accounting reports and financial statements and determine its performance. Of importance to investors are an entity’s profitability, stock valuation and level of risk involved.
This category of users are interested in how creditworthy a borrower is. This helps such bodies in the assessment and determination of the ability of borrowers to repay loan facilities. The financial information would indicate whether an organization has good financial health or bad financial health.
The focus of suppliers with financial information data is to determine whether their customers can pay for the goods and services supplied to them in time.
These users do care so much about deeper elements of financial statements. However, they would want an assurance that the organizations they depend on can provide for their needs in terms of goods and services for a foreseeable period.
Regulators include organizations such as the tax authorities. Such bodies depend on accounting reports to establish whether the respective organizations can continue taking care of their obligations, which involve payment of statutory dues.
Through an organization’s financial reports, the government can take care of its obligations, which involves protecting stakeholder and public interest. In this regard, the government is interested in ensuring that the financial statements and reports are prepared in conformity with the laws and regulations of the land.
These stakeholders are responsible for interrogating an entity’s accounting records with the objective of providing other stakeholders such as investors and independent audit opinion regarding the financial health and going concern of the organization in question.
The members of the public that would have an interest in the financial information of an organization include academicians, analysts and journalists among many others.
Accounting information presented through accounting or financial reports is of immense value to the stakeholders as outlined. The information or reports must, therefore, be relevant in order to offer the intended benefits to the users. Relevant accounting information or data helps users in the evaluation and determining important organizational aspects such as inventory valuation and profitability.
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