Accounting information is designed to meet the needs of both internal and external users.
Internal Users
- Include directors, managers, senior executives, supervisors: those with a position of power.
- They are considered “internal” as they have access to confidential information within the entity, as it is essential to running the business.
- Many of their decisions relate to managing the business on a day-to-day basis, relying on both financial accounting and management accounting data.
- They need to respond to risks and opportunities as they occur, so they always need to be well informed.
External Users
- Users who are not in a privileged position to access information must wait for the official release of financial statements.
- The information they receive is limited by the very summarized and general content provided within these statements.
- Since there are a wide range of user types within this category, they naturally have different information needs. General purpose financial statements available to them are intended to satisfy their common information needs.
Primary Users
- Those who provide resources to an entity, and require information to make decisions about the resources they provide.
- Financial reporting is primarily directed at these users.
- They include:
- Investors: shareholders, both existing and potential
- Lenders: banks and other financial institutions
- Other creditors: employees, suppliers, and customers
Other Users
- Government and regulatory agencies
- Members of the public
- Suppliers, customers and employees when they are not resource providers
Financial reporting is not directed at these users, but they can utilize the information for decision making.
Information Needs
| User | Uses accounting information to determine |
|---|---|
| Shareholders | Future profitability, future cash flows for dividends, and possible capital growth of the investment |
| Banks | Whether the entity can repay a loan |
| Suppliers / Creditors | Whether the entity can repay debt from purchases |
| Employees | Job security, the potential to pay awards and bonuses, and promotion opportunities |
| Consumers | Whether the entity will continue and can provide the right goods and services |
| Government authorities | Tax payable, and any future tax liabilities or tax assets |
| Regulatory bodies | Whether the entity follows regulations such as the Corporations Act and Australian tax law |
| Community / Public | Whether the entity contributes positively to the general welfare and economic growth of the community |
| Special interest groups | Whether the entity considers environmental, social and industrial aspects in its operations |