1.1.3 Users of Accounting Information

There are two broad types of financial information users: internal users and external users.

Internal users of accounting information are the users who are inside an enterprise and plan, organize,manage its business, such as board of directors, Chief Executive Officer (CEO), Chief Financial Officer (CFO), and so on. By reading and analyzing the detailed information involved with the company’s financial position and financial performance, these internal users could make their own decisions about operating, financing, and investing.

External users of accounting information are the users who are outside the enterprise, such as shareholders (investors), creditors (lenders), tax offices, external (independent) auditors, labor unions,and so on. Among them, the first two are the most common types of external users. Shareholders (investors) refer to those who engage in investment activities in the capital market. As the owner of one company,shareholders rely on accounting information to decide whether to buy in, hold on, or sell out shares or stocks of the corporation. Creditors (lenders) are individuals or organizations that the enterprise owes money or other resources. Creditors need to use accounting information to evaluate risks of granting business credit or lending money to the enterprise and to decide whether to provide purchase on credit or lend money to it.

Different external users need different kinds of information. For example, tax offices which have the right to levy need accounting information about whether the company have paid taxes according to the law and how much taxes it should pay, while potential investors follow accounting information of a company’s profitability and sustainability.