The same exact accounting information of an organization is being used by different kinds of users since there is a diverse need for it. So the type of users of accounting information is divided on the basis of the purpose of use. There are two types of users which are known as internal and external users.
Internal users use the accounting information to operate the organization efficiently and effectively. On the other hand, external users use the information to know the financial performance and the situation of the organization so that they can take accurate decisions about the organization. The external users receive the information produced by the internal users.
The cost accountant is both user and producer of the accounting information. His or her job is to prepare budgets, financial statements, and other analysis reports. Thus, he requires accounting information to make these feedback reports that help to run an efficient internal control system. Accounting information can be the input to produce financial feedbacks which is also a piece of accounting information.
An organization may have a financial analyst, an internal user of accounting information whose job is to make an analysis on cost and schedule variance.
He or she uses accounting information to forecast sales, purchases, profits so that internal management can have operational efficiency.
The internal auditor of a company uses accounting information to monitor whether the organization’s internal control system is sound and safe, whether the company meets its operational efficiency.
An Internal auditor can himself be a part of the internal control system who uses the accounting data to analyze whether the organization can meet its goal in achieving operational efficiency.
Accounting data can be used by an employee from another department to make decisions for the organization.
Marketing managers may need accounting information to know whether there is feasibility and suitability to perform a marketing campaign.
The human resource department may ask for accounting information when they involve with payrolls, exit interview projects, or any other campaign relating to employee management.
Procure department may use the accounting information to analyze how to achieve the optimal source of materials.
So, basically, accounting information is involved in every aspect of the business. And thus accounting information becomes a necessity.
An organization may hire a tax specialist to submit the return on behalf of the company. Don’t confuse with the tax authority, an external user of an organization who is collecting authority of tax in a country. On other hand, a tax specialist can be an employee or a freelancer who uses accounting information to prepare the tax returns for the organization. So he or she can be an internal user.
Creditors (Banks, Suppliers, and other payables) are one of the most crucial stakeholders of a business as they provide funds to a business. But they need confidence in whether their debtor has the capacity to repay their loans. So the creditors review the financial statements to check the financial capacity of the organization.
Their objective differentiate themselves as the external users as the objective is not about the contribution to the operational efficiency of that organization rather their own interest to know.
Investors use accounting information to make decisions whether they need to purchase or sell the stock of the organization. This is one of the reasons why accounting information needs relevance, the capacity to influence the decision. Investors may look for financial information such as financial statements, ratios, corporate audit reports, annual reports, etc.
The organization has to go through auditing. Public companies, banks, some charities have to do statutory audits. So in statutory audits or any other external audits, an audit firm provides reasonable assurance about the financial aspects of the organization.
The audit firm has to perform audits where they use the organization’s internal accounting information to make an opinion.
Even though the financial information is mostly based on quantitative aspects, the consumers may use the financial information to understand how much profit the company can make by selling products to them.
Sometimes companies can take advance from their customers. So customers can check whether the company has the capacity to pay back the product they ordered earlier.
A university professor or any other researchers can use the accounting information to prepare their research papers. The researcher may use the accounting information to know how the demand, the price would change in the future.
A researcher may use accounting information to make an analysis of the industry performance or the future prospects of the industry.
A labor union is established to preserve the interest of employees. The labor union may use accounting information to check the company pays the employees fair wages in relation to the profit they have earned.
A government of a country may have different mechanisms to regulate financial markets. Sometimes a government delegates regulatory authorities to monitor the financial markets of the country. So these regulatory bodies use the accounting information to maintain proper regulation as accounting information is one of the crucial subject matters working for obtaining judgments.
The duty of tax authority is to administer the taxes of the companies where the body uses the accounting information to monitor whether the companies submit the appropriate tax returns.
The general public may have a curiosity about the accounting information of a company. A person may review how much an organization earns as the organization uses the national infrastructure.
Accounting information is vital to both internal and external users. The internal users may use the information to perform operations while the external users require the information to be aware of whether the organization can meet their interests.