Users of Accounting Information
Many stakeholders use accounting information. Each of these stakeholders utilizes this information for different purposes based on their needs. It is important, therefore, to design the accounting information system of a company in a manner that generates reports satisfying the information needs of each of the interested stakeholders. The users of accounting information are broadly divided into two groups-external users and internal users. Some of the internal users of accounting information include the business owners and the business managers. External users, on the other hand, include employees and customers, the general public, government agencies, suppliers of goods, creditors of funds, and investors. The category of internal users utilizes a mix of financial and management accounting information (Bushman & Smith, 2001).
One of the internal users of accounting information is the company's management. Managers of a company utilize accounting information when they want to evaluate and analyze financial position and performance; and when they want to take appropriate actions and important decisions for improving the company's performance in terms of cash flows, financial position, and profitability (Van der Veeken & Wouters, 2002). Because it is possible to analyze accounting information in different ways and use the accounting information for different purposes, managers begin using accounting information by identifying the type of decision that they want to make. After identifying the type of a decision, the managers can now gather the correct accounting information and analyze it to make the best decision. If the management wants to lure investors, the accounting information that they will rely on includes cash flow forecasts and cash flow statements, a balance sheet, and the income statement (Van der Veeken & Wouters, 2002). On the other hand, if the management wants to apply for funding, they will most likely focus on such financial ratios as debt to equity ratio or service coverage ratio. Management plays the role of setting procedures and rules that the company can use to attain organizational goals. Therefore, management utilizes information generated by the managerial and financial accounting system of the company. The other internal user of accounting information is the company owners. These are the people who invest funds for starting and running a business with the main objective of earning profit. Owners of a company require accurate financial information so that they can know the amount they have lost or earning during a particular accounting period. With the accounting information, business owners can decide their future course of actions like contraction or expansion of business (Asrida, 2019).
One of the external users of accounting information is investors. Incorporations, those who own the company are different from those who manage the company. The work of investors is the provision of capital. The work of management is running the business. Both potential and actual investors use the accounting information. Accounting information helps actual investors to know the way the management uses their funds and the expected performance of the company in the future in terms of growth and profitability (Asrida, 2019). Accounting information, therefore, helps the actual investors to decide whether to decrease or increase investment in the company in the future. For potential investors, accounting information is used for deciding whether or not to invest in a particular company. Investors can use accounting information to accurately estimate risks and profitability. Profitability constitutes the cornerstone of investment valuation and ratio analysis. The basis of financial analysis is the future earnings of the company. Current profits are used as a base for predicting most earnings. Therefore, if an investor has a strong grasp or understanding of financial accounting, he or she can swiftly decipher whether some line items on the company's income statement cannot occur in the future because of being non-recurring (Bushman & Smith, 2001). Investment valuation involves the estimation of risk or uncertainty of company assets. Financial statements give no direct estimation of risk. However, they offer many crucial disclosures in the notes. Investors can use these disclosures to identify risk. Lenders constitute another example of external users of accounting information. Lenders include financial institutions or individuals that give money to companies and earn interest income on the money. Lenders require accounting information for assessing the financial position and performance and to be reasonably assured that the company to whom they want to lend money would be able to pay back both the principal and the interest thereon (Bushman & Smith, 2001).
Van der Veeken, H. J., & Wouters, M. J. (2002). Using accounting information systems by operations managers in a project company. Management Accounting Research, 13(3), 345-370.
Asrida, P. D. (2019, January). The Impact of Accounting Knowledge and Training towards The Use of Accounting Information on The Owners of MSME in Badung. In Proceedings of the International Conference on Tourism, Economics, Accounting, Management, and Social Science (TEAMS 2018).
Bushman, R. M., & Smith, A. J. (2001). Financial accounting information and corporate governance. Journal of Accounting and Economics, 32(1-3), 237-333.
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