Five of the people who are likely to be interested in accounting information and two reasons why each of them is interested
Answers
Explanation:
There are several parties interested in the accounting information of an organisation. These stakeholders make decisions basing on the financial information of the organisation and are affected by the activities of the organisation. Accounting information is in the form of Financial statements, books of accounts and documents. The parties can broadly be divided into two;
Internal users/parties
External users/parties
Internal users/parties
These are individuals that take part in the day-to-day running of the organisation. These parties include;
Managers/Directors
Employees, trade unions and pensioners
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Managers/Directors
These are individuals who run the organisation on behalf of the owners. They have to ensure that the organisation is profitable, grows, survives and that the owners get a dividend or return on their investment. They monitor the performance of the organisation and have to ensure that shareholders’ resources are well managed and invested. Managers also have to manage costs and ensure that the proper prices are set. They are also charged with the duty of strategic planning of the organisation. For all these, they need financial accounting information.
Employees and trade unions
These need accounting information of the employing organisation for two major reasons;
They want to agitate for better pay and working conditions. They directly or through their trade unions examine the Income Statement / Statement of Comprehensive Income of the employing organisation to establish its revenue and expenditure and whether it is making profits or losses or surpluses or deficits. If it is making profits or surpluses, they will use the Income Statement to agitate for better pay.
They also need accounting information of the employing organisation in order to judge their job security or continued employment. They examining the financial statement of the organisation to see if it is profitable, growing and is a going concern. If they discover that it is not a going concern, they start searching for alternative employment before they are laid off due cost-cutting measures or before the organisation finally collapses.
External users/parties
These do not take part in the day-to-day running of the organisation but are interested in its financial performance. They rely on the accounting information of the organisations in which they have interest in order to make decisions. The include;
Investors/Owners
These are individuals or parties that invest their money into an organisation. The are divided into the following two categories;
Actual investors/owners/shareholders – These are individuals who have already invested their money into an entity or organisation. The need accounting information of the organisations into which they invest so that they establish whether their funds are well invested, increasing and whether they will earn a dividend or return. Through the auditors that they appoint, they monitor the financial status of the organisation and establish whether resources are well utilised or not.
Potential/prospective Investors – these are individuals who are considering investing or buying shares in an organisation. They examine financial statements to try and predict whether the company has growth potential, survival potential and profit making potential. They do this through financial analysts. The need to know whether investing is worthwhile and whether they will get a return on their investment.
Trade Creditors (suppliers)
These are parties that supply the organisation on credit. Before they supply on credit, they perform credit analysis on the intending client. They establish whether the customer has capacity to pay. This is through credit analysis with the help of financial statements.
Lenders
These include banks, Microfinance Institutions and other individuals and institution that extend loans to the organisation. They need to establish whether the potential borrower can pay back the loan. They analyse the financial statements of the borrower especially the revenue, cashflows, assets and liabilities.