Who are the users of accounting information How does accounting provide relevant information to these users?

Term Paper, 2015

15 Pages, Grade: A

Table of Contents

Introduction

Users of Accounting Information and their Needs
1. Owners
2. Customers
3. Suppliers
4. Managers
5. The Lenders
6. The Government and its agencies
7. The Financial Analyst and Advisors
8. The Employees
9. The Public

Branches of Accounting and Their Relevance to Organizations
Financial Accounting
Management Accounting and Cost Accounting
Accounting and Social Practice
Accounting and Corporate Governance
Positive Impacts of Corporate Governance
Negative Impacts of Corporate Governance with regard to Disclosure
Accounting Information Systems

Conclusion

References

Introduction

At the time of its inception, accounting was developed specifically in order to record and classify monetary transactions as well as provide the financial results of the operations of entities. However, over the years, the concept of accounting has evolved and nowadays the techniques, rules and procedures of accounting are being used on a much wider and comprehensive context. Even though the accounting profession has remained specific to its core objectives as described, the branches of the field have developed and become independent of each other in a manner that allows various reporting objectives to be met(Mintz, 2013).

Accounting, in itself is a fundamental part of the information systems of organizations today. This is because there are various parties in the society that need this information apart from the managers and owners of the organizations and institutions. For instance, accounting information is relevant to several institutions and individuals such as the government, suppliers and employees of the organization as well as the public in general. Furthermore, accounting is now regarded as a service function of organizations and the society in general. This is because as an informative function of organizations, it enables various users to make relevant and valid decisions of an economic and financial viewpoint.

The objective of this paper is to justify the existence of the accounting function as a significant and integral requirement of each organization and institution as well as its purpose in the current society we live in today. This entails the analysis of the users of accounting information, the various branches of accounting and the relevance of this information to various stakeholders in the society that surrounds and supports organizations and institutions.

Users of Accounting Information and their Needs

The objectives of accounting information directly correlate to the decision-making requirements of the users. In fact, the needs of the users usually represent the main factors taken into consideration when designing an accounting information system. This is because the users require the accounting information to facilitate their decision-making processes and in turn, this serves as the platform on which to set the guidelines that ensure the uniformity, relevance and accuracy of accounting information and procedure across different organizations.

Generally, the users of accounting information in the society can be classified into two categories, which include the internal users and external users. Internal users refer to the people in the organization producing the accounting reports while the external users are the people, institutions and entities outside the organization’s boundaries who use the information for the purpose of decision-making(Florin-Constantin, 2012). These users and their specific needs include:

1. Owners

These are the investors in the business and are the parties that are the titleholders to the organization or institution. Examples of owners include sole traders in single owned entities, partners in partnerships and shareholders in companies and other forms of corporate bodies(Florin-Constantin, 2012) Their main need to have on time accounting information regarding the organization is in order to keep track of the financial performance, economic position and changes in financial position of their organization. This information will facilitate the assessment of the performance of the managers of the organization in order to evaluate their efficiency and effectiveness. Furthermore, the information is relevant to the owners in the sense that it facilitates the determination of whether the business is maximizing profits and wealth or not.

2. Customers

They are the purchasers of the organizations’ commodities and services and are in fact, the economic drivers of the organizations. Since the customers are reliant on the organizations for the products or services for the purpose of personal consumption or for resale, their main purpose for accounting information is in order to evaluate the capability of the firms to continue supplying them with their needs in the future. This evaluation will be derived from the accounting statements of firms indicating the profits or losses as well as the financial position of organizations and will be the platform for establishing whether the entity can continue operating as a going concern.

3. Suppliers

These are the parties responsible for providing the organizations and institutions with the products or services necessary for operation and sustenance. These supplies may range from raw materials for manufacture, sundry provisions such as stationery, outsourced services and transportation services among others. Usually, suppliers are compensatedeither in cash or in credit basis. Their need for accounting information comes from the intention to determine whether the organization is capable of meeting its obligations to pay for the supplies it receives either on the short or long run(Florin-Constantin, 2012). Similarly, the information that confirms this to the suppliers is the capacity of the organizations or institutions to continue operations as a going concern

4. Managers

The managers are regarded as the agents of the owners of the organizations since they are in charge of the day-to-day activities of the establishments. They essentially run the organizations through a variety of managerial functions such as planning and strategy formulation, controlling of activities, organization of the entity and its staff, human resource administration and directing of the personnel of the organization. Each of these functions is related to the financial and economic framework of the organization and thus, the managers and directors require accounting information in order to determine whether the organization is working towards its objectives(Albassam, 2014).

In case the plans are not achieved, then the managers come up with appropriate measures and make the relevant decisions that facilitate the firm’s alignment to its targets.

5. The Lenders

They are the parties that provide alternative capital sources to the organizations. While the owners provide equity capital, lenders usually provide the organization with debt capital and usually get a return in the form of interest. Examples of lenders include debenture holders in companies, banks and other financial institutions that grant loans. The need to have real-time accounting information on the economic performance and financial position of organizations is in order to assess whether the entities are sufficiently profitable to pay the interest on loans and whether the organizations possess enough resources to pay back the principal amount when the amount becomes due(Mintz, 2013).

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