Question

Explain the quality of financial information which are necessary if such information is to be useful to user and identify the choices of information, which are available to the director of a company.

Answer 1

There are two types of users in an organization who would access the financial information to understand more about the progress of the company. The users are classified as internal and external users.

Internal users will interested in financial information for taking strong decisions like expansion or downsizing. Managers and owners constitute the internal users who use this information for taking decisions about investment or borrowing based on financial position of company. Hence internal users will have to have access financial information to complete detail.

External users of financial information are as follows :

1. Prospective owners
2. Lenders
3. Employee unions
4. General public
5. Customers
6. Government Units
7. Shareholders

The information available to the above users helps them to understand the performance of the organization with respect to :

1. Investment in shares
2. Percentage of lending extended to organization based on their annual performance.
3. Increase in wages based on annual turn over
4. Know if the organization is charging fair price for its services or products
5. Will the company survive the competition etc

The Director of the company will have to have the accurate and forecasted data in order to help them take strategic decisions. They will be interested in knowing about the company's performance and growth forecast for at least the forthcoming two successive years to understand if they are progressing in the right direction.

Hence it is important for the organization to present financial information to both internal and external users.