Main Users of financial Reports and Their Conflicts

Essay by zhouxingUniversity, Bachelor'sC, September 2004

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Identify the main users of financial reports, explaining to what use(s) they may put such reports. To what extent is there a conflict between different uses? How far are these conflicts resolved in a single set of annual accounts?

The financial reports are profit and loss account, balance sheet and cash flow statement.

There are many users /parties interested in the accounts of a company /organization. These include the following:

The owners / shareholders

The directors / managers

The employees

The creditors, i.e. suppliers of goods on credit

The tax authorities

Lenders, such as banks or other financial institutions


The users want the accounts for a variety of purposes, for example:

The owners/shareholders are mainly concerned of the profitability of the business and they therefore use them to see if they are getting a satisfactory return on their investment, and also to assess the financial health of their company/business.

They may also use financial statements to assess the performance of the managers and decide the pay of managers who are employed to run the business for owners, which is part of the stewardship role of the accounting.

The directors/managers are the ones to conduct the day-to-day operations and decision-making of the business and they are, arguably, the most important users of the business because they require much more information in great detail on a more frequent basis than any other users. They normally use them for making both internal and external comparisons to evaluate the performance of business. They may compare their own financial analysis of their company with industry figures (competitors) in order to ascertain their company's strengths and weaknesses. Management are also concerned with ensuring that the money invested in the company / organization is generating an adequate return and that the company / organization...