January 26, 2022

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Accounting + Finance Blog

Top 7 external Users of accounting and financial information

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External users of accounting information are another aspect that required more deliberations. Unlike internal users, the actions of one of these external users can not be influenced by the business. However, it may have either a positive or negative impact on the firm. It may bring the firm to an end.

External users of accounting information

Here are the top five external users of financial information below:

Potential Investors: Investors interested in buying shares, stocks, or bonds of a company are referred to as potential investors. These investors required accounting information of a business to decide on buying its securities. They want to know if the firm is earning profit or it has the potential for growth of the business.

Banks: Banks are the most valuable aspect of every business. Every business has a bank account. In addition, to receive a loan from a bank, it is normal for the bank to request specific accounting information from your business. In Nigeria for example, banks require a cash flow statement to give you assess to their loan facilities.

Banks need this information to know if the business can pay up the debt and the interest as it falls due. Similarly, it requires financial information to ascertain the value of the collateral security pledged for the loan.

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Customers/Debtors: These users patronize business products. Without them, revenue generation may be hindered. A problem with these set of users is that they may owe the business thereby depriving the firm of Cash its should use for other purposes.

However, not all customers behave in that way. Bank customers, for instance, provides funds to the bank, in the form of savings and other deposits. Therefore, the bank owes such customers. Customers, in general, need accounting information to know if the firm will continue for a long time.

Supplies/Creditors: Supplies are the individuals and organizations that provide raw materials and other supplies to the business. They are creditors if the firm fails to pay for the goods immediately.

Comparable to banks, creditors require accounting information to know if the company has the capacity to pay its debts as it falls due. This can be discovered from the financial statement of the firm. If the firm, current liabilities are more than its current assets, then, it can be said that such a firm cannot meet its debts when the creditors requested it.

Government Ministries, Departments, and Agencies: Ministries, Department, and Agencies (MDAs) of government need financial information for a variety of reasons. Most of the MDAs perform a regulatory function, others require a business to pay a certain amount of money to the government.

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The federal and state tax agency needs the accounting and financial information to ascertain the actual tax returns accrued from the firm to government. Other government users such as the apex bank, the ministry of finance, and more may need accounting information for regulatory purposes.

The Media: The media, such as blogs, national dailies, television, radio, and newspapers scan for information on a daily basis to provide useful and reliable information to their readers and viewers.

To achieve this, the media house needs accounting and financial information from the firm. This information is made available to its readers and viewers. A good example of this is when companies publish their financial statements or when it received funds from an investor.

Researchers: Individuals or groups may need accounting information to carry out research on a particular subject matter. For example, a researcher studying how loans affect the growth of commercial banks will need the financial statements of banks to successfully make a conclusion from his or her inferences.

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Next, the branches of accounting will be discussed.

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