NAME: ABUBAKAR IBRAHIM
MATRIC NO: HPA/EP/22/0920
DEPT: PUBLIC ADMINISTRATION
COURSE: PUBLIC FINANCIAL MANAGEMENT
USERS OF ACCOUNTING INFORMATION
Accounting is the language of business; it brings life to the otherwise lifeless
business activities. It acts as a bridge between users of the information and the
day to day transactions that occur inside a business. Users of accounting
information may be inside or outside a business.
Qualitative characteristics of accounting information: such as identifying,
measuring, recording and classifying financial transactions help businesses with
decision making, analysis, target setting, budgeting, pricing, forecasts, etc.
There are primarily two types of users of accounting information;
Internal users (primary users) – If a user of the information is part of the
business itself then he/she is considered as one of the internal or primary users of
accounting information.
For example, management, owners, employees, etc. The branch of accounting
which deals with internal users is called management accounting.
External users (secondary users) – If a user of the information is an external
party and is not related to the business then he/she is considered as one of the
external or secondary users of accounting information.
For example, potential investors, lenders, vendors, customers, legal and tax
authorities, etc.
INTERNAL USERS OF ACCOUNTING INFORMATION – (Primary)
Following are the primary users of accounting information:
1. Management – Organization’s internal management includes all junior and
senior business managers.
They use it for
1. Budgeting, forecasting, analysis & take important financial decisions.
2. Investment decisions, identification of warning and opportunity signals.
3. Taking informed & evaluated decisions.
4. Compliance with all statutory, regulatory, and any other external body.
2. Owners/Partners – Owners are the legal stakeholders of the business and the
ultimate signing authority.
They use it for
1. Tracking their investment and monitoring their return on investment.
2. Observing their capital invested and evaluating its upward or downward move.
3. Keeping an eye on the overall well-being of the business.
3. Employees – Full-time & part-time workers. They are essentially on the
company’s payroll.
They use it for
1. Checking the overall financial health of the company as it affects their remuneration
and job security.
2. Decision making in case of shares based payment such as ESOPs offered by the
employers.
3. Examining if the employer is depositing all required funds to the appropriate
authorities such as the provident fund, 401(k), etc.
EXTERNAL USERS OF ACCOUNTING INFORMATION (Secondary)
Following are the secondary users of accounting information:
1. Investors – They may be current investors, minority stakeholder, potential
future investors, etc.
They use it for
1. Checking how the management is utilizing the equity invested in the business.
2. Decisions related to an increase in investment or to divest from the business.
3. Analyzing their present investment in the business or the overall financial health in case of
a potential investor.
2. Lenders – Banks and Non-banking financial companies which provide loans in
the form of cash or credit are termed as lenders.
They use it for
1. Evaluation of short-term and long-term financial stability of a business.
2. An insight into the liquidity, profitability, etc. with the help of ratio analysis
3. Assessment of the creditworthiness with the help of financial ratios and scrutiny of
the three main financial statements in accounting.
3. Regulatory and Tax Authorities – Regulatory bodies such as the stock
exchange & authorities include the govt. along with various statutory and tax
departments.
They use it for
1. To keep a check and ensure that the firm is following all required accounting principles,
standards, rules & regulations.
2. The ultimate intent is to protect business integrity & safeguard investors.
3. Tax department as one of the users of accounting information assures accurate tax
calculation by the companies.
4. Customers – Are buyers of goods or services and may exist at any stage of a
business cycle. They may be producers, manufacturers, retailers, etc.
They use it for
1. Checking the continuous inflow of stock and the pace of overall production.
2. Assessing the financial position of its suppliers which is essential to maintain a stable
source of supply.
5. Suppliers – Are the sellers of goods and services.
They use it for
1. Inspecting the credibility of their customers by evaluating their repayment ability.
2. Setting up a credit limit & payment terms with their customers.
