Users of financial statements
Users of financial statements may directly or indirectly have an economic interest in a specific business.
Users with direct interests usually invest in or manage the business,
Users with direct interests include :
- Investors or potential investors
- Suppliers and creditors
- Employees
- Management
Users with indirect interests’ advice, influence, or represent users with direct interests.
Users having indirect interests include :
- Financial advisers and analysts
- Stock markets or exchanges
- Regulatory authorities
The users of financial statements also may be grouped by their relation to the business.
Internal users
Use financial statements to make decisions affecting the operations of the business.
These users include :
- Management needs financial statements to assess financial strengths and deficiencies, to evaluate performance results and past decisions, and to plan for future financial goals and steps toward accomplishing them.
- Employees and union want financial information to negotiate wages and fringe benefits based on the increased productivity and value they provide to a profitable firm.
- Board of directors needs financial statements to accomplish its oversight function
External users
Use financial statements to determine whether doing business with the firm will be beneficial.
These users include :
- Investors need information to decide whether to increase, decrease, or obtain an investment in a firm.
- Creditors need information to determine whether to extend credit and under what terms.
- Financial advisers and analysts need financial statements to help investors evaluate particular investments.
- Stock exchanges need financial statements to evaluate whether to accept a firm’s stock for listing or whether to suspend the stock’s trading, But note that: stock exchanges do not set the stock prices, stock prices are determined based on forces of supply and demand in stock markets.
- Regulatory agencies may need financial statements to evaluate the firm’s conformity with regulations and to determine price levels in regulated industries.