It is easy to assume that the only users of accounting information
are shareholders - since it is a requirement of company law that shareholders
must receive periodic accounting statements. However, in reality there are
many users of accounts. The table below summarises the main user groups and
provides examples of their areas of interest in accounts:
User
Interest in / Use of Accounting Information
Investors
Investors are concerned about risk and return in relation
to their investments. They require information to decide whether they
should continue to invest in a business. They also need to be able to
assess whether a business will be able to pay dividends, and to measure
the performance of the business' management overall. The key accounting
information for an investor is therefore:
- Information about growth - sales, volumes
- Profitability (profit margins, overall level of profit)
- Investment (amounts invested, assets owned)
- Business value (share price)
- Comparative information of competitors
Lenders
Banks and loan stockholders who lend money
to a business require information that helps them determined whether
loans and interest will be paid when due. The key accounting information
for lenders is therefore:
- Cash flow
- Security of assets against which the lending may be secured
- Investment requirements in the business
Creditors
Suppliers and trade creditors requirement
information that helps them understand and assess the short-term liquidity
of a business. Is the business able to pay short-term debt when it falls
due? Creditors will, therefore, be looking for information on:
- Cash flow
- Management of working capital
- Payment policy
Debtors
Customers and trade debtors require information
about the ability of the business to survive and prosper. As customers
of the company's products, they have a long-term interest in the company's
range of products and services. They may even be dependent on the business
for certain products or services. Customer will be particularly interested
in:
- Sales growth
- New product development
- Investment in the business (e.g. production capacity)
Employees
Employees (and organisations that represent
them - e.g. trade unions) require information about the stability and
continuing profitability of the business. They are crucially interested
in information about employment prospects and the maintenance of pension
funding and retirement benefits. They are also likely to interested
in the pay and benefits obtained by senior management!. Employees will,
therefore look for information on:
- Revenue and profit growth
- Levels of investment in the business
- Overall employment data (numbers employed, wage and salary costs)
- Status and valuation of company pension schemes / levels of company
pension contributions
Government
There are many government agencies and departments
that are interested in accounting information. For example, the Inland
Revenue needs information on business profitability in order to levy and
collect Corporation Tax. Customs & Excise need accounting information
to verify Value Added Tax ("VAT") returns; local government
need similar information to levy local taxes and rates. Various regulatory
agencies (e.g. the Competition Commission and the Environment Agency)
need information to support decisions about takeovers and grants, for
example.
Analysts
Investment analysts are an important user group
- specifically for companies quoted on a stock exchange. They require
very detailed financial and other information in order to analyse the
competitive performance of a business and its sector. Much of this is
provided by the detailed accounting disclosures that are required by
authorities such the London Stock Exchange. However, additional accounting
information
is usually provided to analysts via informal company briefings and interviews.
Public at large
Interest groups, formed by various groups of
individuals who have a specific interest in the activities and performance
of businesses, will also require accounting information.
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