Question

There is a wide range of users of financial (accounting) information. Every user has different needs.

Required: Identify any FIVE (5) users of financial information and explain how their needs are met (or not) by financial information. Who is responsible for providing this information? Discuss how these needs are met or not met. (Think about the various ways they can get the financial information they require)

Answer 1

Users of financial information are as follows:

Management : Management has to check out its performance in the financial statements. Through various ratio analyses, management is able to know about the performance of the organisation along with the profitability of the firm. Financial statements provide an idea of the key area where management has to focus but exact information about where is the problem and what steps are required are not shown in the statements.

Shareholders: Profitability, earnings, dividends, interest payments all are visible in the statements. Shareholders analyze all information about future prospects of the company and decide to invest, withdraw or hold their investments.

Government: Government has to govern all the companies, it keeps an eye overall to protect investors and stakeholder's interests. It keeps a check if the company is involved in any illegal or fraudulent activity, or trying to save tax in any illegal way. This information is available in statements.

Investors: Those who are ready to deal in the market are interested in knowing such information. They compare the future prospects, profitability in the companies and invest therein.

Employees: Employees of the company are interested in the financial position of the company. They mainly do not get information based on salary structure or any further prospects

Credit rating agencies are interested in such information. Based on all the information they give credit rating to the company which helps companies to borrow from the market. If these agencies find anything wrong or doubtful, there may rate the company lower which can effect the company in the future.

Management is responsible to provide all these informations.