Accounting information helps users to make better financial decisions. Users of financial information may be both internal and external to the organization.
External users of accounting information include the following:
Creditor: for determining the credit worthiness of the organization. Terms of credit are set according to the assessment of their customers' financial health. Creditors include suppliers as well as lenders of finance such as banks.
Tax Authorities: for determining the credibility of the tax returns filed on behalf of the company.
Investors: for analyzing the feasibility of investing in the company. Investors want to make sure they can earn a reasonable return on their investment before they commit any financial resources to the company.
Customers: for assessing the financial position of its supplier which is necessary for a stable source of supply in the long term.
Regulatory Authorities: for ensuring that the company's disclosure of accounting information is in accordance with the rules and regulations set in order to protect the interests of the stakeholders who rely on such information in forming their decisions.
External users are communicated accounting information usually in the form of financial statements. The purpose of financial statements is to cater for the needs of such diverse users of accounting information in order to assist them in making sound financial decisions.
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