The accounting process provides invaluable financial data in the form of financial statements for a broad range of individuals. However, although many business owners understand the usefulness of this information, only some know who uses the statements produced. 

Below, we’ll explore who uses accounting information. Then, we’ll explore the external and internal users with a stake in accounting information in various ways. 

Why does a business need accounting information?

Accounting information is vital for a business to thrive by tracking expenditures and income, remaining compliant, and providing investors with key information surrounding the company’s health. 

Three key financial statements get generated by accounting information:

  • The income statement explains profit and loss
  • Balance sheet, which gives a whole picture of the company’s financial position
  • Cash flow statement to bridge the gap between the income statement and balance sheet
Why do we need accounting? By EconClips

Who uses accounting information? 

Internal and external users use the financial information produced by a company for different reasons. But first, let’s explain what these groups are. External users include groups of individuals who fall into one of these categories: investors, creditors, suppliers, government agencies, the public, and customers. Internal users come in the form of managers, business owners, directors, stockholders, internal auditors, and employees.

Internal and external users of accounting information

Internal users
- Owners and stockholders
- Directors, managers, company officials
- Internal departments, employees,
- Internal auditors

External users
- Creditors
- Investors
- The government
- Trading partners
- Regulatory agencies
- International standardization
- Journalists
Internal and external users of accounting information

Internal users of accounting information

Owners and stockholders

Owners refer to titleholders of the organization or institution. These individuals are direct investors in the business through single-owned entities or partnerships. Their need for on-time and accurate accounting information is crucial to making an important business decision that could decide the company’s future.

Stockholders are those who have some interest in the success of the company. Investors and creditors are a good example, but even the local community could represent stakeholders. An example would be a large factory providing jobs to thousands within a local community, and if it were to fail, it would have a significant impact on the population. 

Directors, managers, company officials

Everyone within this group works directly within the company and has a stake in its success. This group includes all directors, such as the CEO, COO, and VPs, who must make important decisions concerning the company’s finances. 

Internal departments, employees

Internal departments and employees consist of everyone who works in the company. Though they may not see the financials for themselves all of the time, they have a stake in the company’s success. As such, it’s important to them that those who need to make decisions get that information on time.

Internal auditors

Internal auditors have a large stake in receiving financial information in a timely fashion. Therefore, the function of internal auditors is to ensure that all financial statements are presented correctly and remain compliant. 

External users of accounting information

Creditors

Creditors include lenders who use accounting information to determine whether a company has the ability to repay a potential loan. They review the information to check income along with other potential liabilities of the company as a borrower.

Investors

Investors provide the capital needed for the company to start and continue functioning. Before someone decides to invest any amount of capital into a company, they have an obligation to review all financial documents produced by the company and see if their investment is secure.

The government

One of the biggest financial statement users is the government—as a way to determine if a company complies with all rules and regulations. Financial statements serve as a window into the company allowing government regulatory agencies to monitor the economy and market. 

Trading partners

These parties include individuals or companies who do business with the company producing the financial statement. When signing a contract with a second company, financial statements become a key aspect of deciding with which company to work. 

Regulatory agencies

Various government bodies work as regulatory agencies to determine whether companies comply with all regulations. These regulatory agencies can exact fines if they find things are not done as they should be regarding financial statements. 

International standardization agencies

Aside from the United States government’s regulations, international standardized agencies also have their own that companies need to keep in mind. This is especially important in such a global economy where many companies conduct business outside United States borders.

Journalists

Although this group might not be the first to spring to mind, journalists also have their own stake in companies’ accounting information. Journalists monitor the economy and report on their findings, getting the most vital information from financial statements. 

Internal vs. External Users of Accounting Information (Financial Accounting Tutorial #3) By Notepirate

Frequently asked questions

Who are the users of accounting information?

External and internal users use accounting information under various circumstances. These divide further into these categories:
External
• Creditors
• Investors
• Government
• Trading partners
• Regulatory agencies
• International standardized agencies
• Journalists
Internal
• Owners and stockholders
• Directors, managers, and other company officials
• Internal departments and employees
• Internal auditors

Why does a business need accounting information?

A company needs accounting information for various reasons, but mainly to ensure the company’s financial health remains intact. Accounting information gives insight into the profit and loss the company has seen throughout a certain time frame and discloses that information to those with a stake in the matter.


In closing

Owners often wonder who uses accounting information when they work to generate new financial statements. In truth, many different groups use financial statements to make important decisions regarding a company’s financial health. These statements should also reflect the full truth of the accounting practices within the company within a specific time frame.

External and internal users have a stake in the financial statements generated by a company. These users use the financial statements in different ways, but most of the time, it’s to determine whether to invest, provide credit, or make decisions about regulatory compliance. Some of these users include individuals such as owners and directors or agencies such as government regulatory bodies and international standardized agencies. 

Agata Kaczmarek has held a passion for writing since early childhood. A professional writer for many years, Agata specializes in writing articles and blogs focused on finance as someone who holds a Master’s Degree in Accounting and Finance.


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