Users of accounting information are internal and external.
Creditors, investors, government, trading partners, regulatory agencies, international standardization agencies, journalists are external users of accounting information and internal users are owner, directors, managers, employees of the company.
Let’s look at who are the internal and external users of account information and why they use it.
Internal users of Accounting information
Internal users are that individual who runs, manages and operates the daily activities of the inside area of an organization.
So who are the internal users of account information;
- Owners and Stockholders.
- Internal Departments.
- Internal Auditor.
Managerial accounting identifies, measures, analyzes and communicates the financial information needed by management to plan, control, and evaluates a company’s operations for the internal users.
Its goal is to provide necessary information for the management or also can be defined as Internal users.
External users of Accounting information
External users are those individuals who take interest in the account information of an organization but they are not part of the organization’s administrative process.
External users have direct or indirect interest in the accounting information.
Financial accounting is the process for the preparation of financial reports of the enterprise for use by both internal and external parties.
These reports are important to the external users of accounting information.
Examples of external users of accounting information are;
- Trading partners.
- Regulatory agencies.
- International standardization agencies.
Creditors and Investors are the most regular example of external users among many other external users.
The external users of accounting are;
Creditors or lenders use the accounting information to find out the ability of the borrower to repay the loan, the number of assets and liabilities of the borrower, evidence of income, economic position etc. before he or she lend the money to the economic entity.
Investors are the capital providers of a business.
Before investing, an investor sees the financial report for figuring out the possibilities of the business in the future. Financial information is important for an investor for making sure that the investment is secure.
Business needs business to do business, it is the truth.
Associate trading companies look at the financial information and make the decision to trade with the particular economic entity.
Government Regulatory Agencies
The financial information is vital for government regulatory agencies as it allows them to monitor the economy and market.
Lawmakers and economic planners
It is important to keep a nation’s economic structure up-to-date with the global changes. It is a job for the lawmakers and economic planners.
The accounting information provides information that is necessary for making changes to the existing laws at the right moment for the economy and society betterment.
There are other external users for example; labor unions, customers and consumers, suppliers, SEC, tax authority, chamber of commerce, press, competitors, auditors etc.
Anybody outside of the managing radius of an economic entity is interested in the financial information of it, is defined as an external user.
For example to that statement; a BBA student looking for financial information on GOOGLE, he or she is the external user of the accounting information of GOOGLE.
The financial reports or information are the result of the accounting process that transferred to the users in two forms-internal and external.
These reports used for effective for operating the business by the internal users, on the other hand, the external users use the information to get a real picture of the financial state of the organization.