why are owners considered external users of financial information while board of directors are internal users.

Expert Solution

Financial Statements are prepared by finance professionals appointed by the management for the users or beneficiaries of such statements. These users (the management itself being one of them) can be broadly divided into two - Internal Users and External Users

Some of the Internal users are employees, management, board of directors and other key managerial personnels. They require financial statements to review and analyse the financial performance of the business including its profitability, debt management and efficiency of the management. Board of directors are a group of people who are in charge with planning and policy making of the organisation and provide direction to the management. The financial statements help them to analyse the present situation of the company and plan accordingly.

Owners or shareholders, as the case maybe, are people who contribute funds to the company by owning shares or stock. Board of directors are people who are usually selected from among the shareholders/owners to manage the business. Owners use financial statements to analyse the financial position of the company thereby ensuring safety of their funds and deciding whether to maintain such funds or invest more in the business/company or withdraw their capital. They use and analyse financial statements from an external point of view rather than from inside the business. Hence they come under the category of external users.

ekkarill92 answered 2 years ago

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