User Groups in Accounting, Essay Example

Abstract

The paper is devoted to the discussion of accounting information users. The two groups of users (internal and external) are discussed. The various needs of users are evaluated and addressed. The paper shows that the major account’s obligation is to maintain the clarity of financial records, to follow the basic accounting standards, and to disclose accounting information to users within the limits, which help them meet their needs.

Introduction

In the present day business environment, the accounting profession is no longer limited to maintaining good records or balancing limited company resources. Rather, it is a cluster of responsibilities and obligations, which a professional in accounting should fulfill in order to maintain and preserve positive company reputation and image. Not only are accountants responsible for maintaining financial records of the company, for which they work, but they should also realize the need for different groups of users to access accounting information. In this context, the knowledge of user groups and the accountant’s responsibilities toward each user group are of critical importance for any accounting professional.

Users of accounting information usually fall into the two large categories – external users and internal users. External users include lenders, shareholders, external auditors and customers, as well as government agencies, whereas internal user groups cover those, who belong to and/ or work within the organization, including internal auditors and managers, budget officers and staff, directors, controllers, and financial officers (Wild-Larson, 2007). External user groups may also include suppliers and competitors (Teal, 2009).

Investors may need accounting information to evaluate potential capital risks and to predict the return they will have on their investments. They also need accounting information to decide, what to buy, to sell, or to hold. In the same manner, shareholders are interested in the accounting information, and the accountant’s obligation is to provide them with the fullest data within the limits, necessary to meet their needs. Lenders may also need accounting information, because prior to taking positive lending decisions they should be confident that the sum of the loan and the interest will be paid back on time (Wild-Larson, 2007). Customers may have some interest in accounting information if they want to develop long-term stable relationships with the company, while suppliers usually need accounting information to evaluate potential partnership risks. Government agencies need accounting information to regulate their taxation policies or to use it for national statistics purposes (Wild-Larson, 2007). For internal users like managers and budget officials, accounting information is needed to monitor and control the effectiveness of the major decision-making and planning initiatives (Wild-Larson, 2007). In this context, the major accountant’s obligation is to maintain clarity of the accounting information, to promote fairness and honesty in accounting records, and to disclose this information to external and internal users whenever the need for such disclosure becomes urgent.

In case of Joe’s business, the purposes of accessing and using his accounting information may vary. For example, potential customers may be willing to see how Joe’s business works and whether it is reputable. Government agencies and external auditors may want to ensure that Joe keeps all financial records in due form and does not falsify accounting documents. Joe himself may want to evaluate the quality and reliability of the accounting information for the purposes of short-term and long-term business planning. In distinction from a public corporation which sells its stocks, the public will hardly be interested in accessing Joe’s accounting information. Given the specificity of Joe’s business, users of accounting information will not include shareholders and the public. That, however, does not mean that in his accounting endeavors Joe is not responsible to the public. Even if Joe does not decide to become a public traded company, he is primarily responsible for the quality of his accounting information, and should be confident that his accounting records meet the basic standards for accounting information and provide clear and relevant data about his business.

Conclusion

Users of accounting information are usually divided into the two large groups – external and internal users. External users include shareholders, lenders, suppliers and customers, external auditors, governmental agencies, and the public. Managers, budget officers, internal auditors, accountants, and controllers belong to the internal user group. A professional accountant is expected to maintain clarity and integrity of financial records and to run them in a way, which meets the basic standards of accounting information. The major accountant’s obligation is to disclose accounting information to users within the limits, which help them meet their needs.

References

Teal, L. (2006). Users of accounting information – virtual presentation. Retrieved November 21, 2009 from http://www.wisc-online.com/objects/index_tj.asp?objID=ACC1104

Wild-Larson, C. (2007). Fundamental accounting principles. McGraw-Hill Companies.