'External Users' Definition:
External users are entities or individuals who do not participate in running or managing the business but are interested in the financial information of the company. Unlike internal users, they do not make decisions for the business.
- Definition of external users
- Who are the external users of accounting information?
- Internal users of accounting
Who are the external users of accounting information?
External users do not make decisions for the business, however, they are interested in the company's financial information for some other purposes. External users include:
Potential investors are interested in the past performance of a business and its potential for future earnings. The financial statements of a company summarizes historical information on performance, financial position, and business activities. These sets of information are vital in assessing profitable investments. Current investors also want to track the performance of their investments to be able to decide whether to hold on to such investment or look for more promising ones.
2. Trade Creditors or Suppliers
Some suppliers of businesses provide goods and services on credit. Before extending credit, trade creditors review the ability of a business to pay. Creditors are particularly interested in a company's liquidity (i.e., ability to pay short term obligations). Cash flows and profitability is also assessed. Information gathered may also be used in determining the extent of credit to be allowed, credit period, and other credit policies to be applied.
3. Banks and Other Lenders
Lenders would like to know if a business is capable of paying debts. Lenders often asses the stability of the business as well as cash flows and profitability. They are particularly interested in the ability of a business to pay borrowings and the corresponding interests when they become due.
4. Tax Authorities and Regulatory Agencies
Tax authorities use accounting information in determining taxes due from the business. Businesses pay different kinds of taxes and are computed in reference to different tax bases and different tax rules. Businesses are also required to submit reports to regulatory agencies such as the SEC. These agencies watch over compliance to corporate and trade laws.
5. Employees and Labor Unions
Non-managerial employees form part of the operations of the company but do not participate in decision-making. Employees want to know if the company has the ability to pay remuneration and benefits. Labor unions review the financial performance and condition of the company before making demands on salary increase, employment benefits, and other labor matters.
Customer or clients may become interested in knowing whether a company is capable of continuously providing their needs. This happens when a customer uses the goods from a particular company as raw materials or supplies in his own business or when he is heavily dependent upon the goods or services of the company.
Anyone outside the company who do not participate in the day-to-day operations of the business and makes use of the company's financial information is considered an external user. This includes analysts, researchers, students, media reporters, and publishers. They are interested in financial information about the company for educational, scholarly, and other non-commercial purposes.
Internal Users of Accounting Information
Internal users are to those who use information in making decisions for the business. Internal users actually refer to the members of the company's management: top management, middle management, and lower management. They need financial information to guide them in doing their tasks and in making informed decisions that affect the operations of the company.