1.3 The Users of Accounting Information

The users of accounting information normally refer to those who are interested in the financial status or performance of the business. They are usually called stakeholders. By definition, as Collins Concise English Dictionary addresses, a stakeholder is either a person or group who has a significant percentage of a company's shares, or affected by or having an interest in its operations. Employees, customers, and local communities are examples of them.

According to their different sources to get accounting information from, we categorise the stakeholders into internal, connected and external.

1.3.1 Internal Stakeholders

The internal stakeholders can obtain internal accounting information through their daily involvement in business affairs.

●Managers/Directors are the day-to-day decision-makers of the company, and they are appointed by the owners and act on behalf of the owners. Managers need to know how well things are progressing financially and how about the financial status of the business, so that they can make decisions to pursue the maximum wealth for the owners. They are the ultimate producers of the accounting information published and are primarily responsible for the preparation and presentation of the financial statements. Apart from that, they can also get internal accounting information, such as the cost and the budget information, for their daily decision-making needs.

●Employees and their representative groups need information about the stability and profitability of their employers, so they can assess the entity's ability to provide remuneration, retirement benefits and employment opportunities. As also involved in day-to-day running of the business, they can get internal accounting information in certain levels.

1.3.2 Connected Stakeholders

The connected stakeholders are those entities who have business relationship with the company. Usually, they can only get the published accounting information through the Internet or commercial databases, etc.

●Trade contacts include suppliers who provide goods and services on credit and customers who purchase goods or services. Suppliers want to know about the company's ability to pay its debts. Trade creditors are likely to be interested in an entity over a shorter period than lenders, unless they are dependent upon the continuation of the entity as a major customer. Customers need to know that the company is a secure source of supply, so that repeat purchases and after-sales services will be available.

●The bank or other finance providers allow the company to operate with an overdraft, or provide a longer term loan secured on the company's certain assets. For example, a bank wants to ensure that the company can keep up loan payments (both interest and principal). If the owner wants to borrow money for business use , these creditors will need the business's accounting information to evaluate the business's financial robustness.

●Shareholders (owners) of the company want to evaluate management performance. They are the company's capital providers, so they are concerned about the risk to their investment and the return they will get. They need information to help them determine if they should buy more, hold or sell their shareholdings. Shareholders want to know the profitability of the company's operations and how much can be paid as a dividend to shareholders. In addition, the value of their investment in the company is affected by the company's profitability.

1.3.3 External Stakeholders

The external stakeholders neither get involved in operations nor have any business connections with the company. They are mostly interested in the company's legitimacy in its operation, whether rules, regulations, morals or certain rights are violated. Their sources of accounting information are mainly external.

●The taxation authorities want to know about business profits to assess the company's tax payable, including sales taxes.

●Financial analysts and advisers need information for their clients or audience. For example, stockbrokers need information to advise investors; credit agencies want information to advise potential suppliers of goods to the company; and journalists need information for their reading public.

●Government agencies are interested in the efficient allocation of resources and therefore in the activities of enterprises. They also require information to provide a basis for national statistics.

●The public are affected by business entities in a variety of ways. For example, they may make a substantial contribution to a local economy by providing employment and using local suppliers. Another important factor is the effect of an entity on the natural environment, for example, as regards the levels of pollution generated by the entity.

●The stock exchange regulation bodies need to know whether the public listed companies follow the rules in their activities relating to stock exchanges, and whether the companies have financial issues which will lead to problems for their shares to be trading on the market.

All the above stakeholders have accounting information needs from different perspectives. While financial accounting produces information, which mainly focuses on the request of owners and creditors, because it is impossible to produce accounting information at a reasonable cost in a form that suits all the stakeholders.