Who Uses Accounting Data ?

Financial reporting is used by a wide variety of users for a wide variety of purposes. For this reason it has been difficult to set a common framework of accounting. The many stakeholders often have contrasting needs from accounting information. Let’s look at the stakeholders and their need for accounting data:

  • Capital Markets: Accounting information is widely used in the capital markets. The stock price moves up and down in relation to financial data. This is because the data provides most recent measure of a company’s performance.

  • Lenders: Lenders use accounting data to judge the creditworthiness of the firm. It is a common misconception that lenders against the feasibility of the project at hand. In reality, lenders look at the financial statements of the firm to find out whether the firm will be able to meet the loan obligations from its existing cash flow. Accounting data thus helps them hedge their risks.

  • Government: Government has to tax the business at the profit that has been generated. Profit is the end result of preparation of Income Statement i.e. an accounting documents. Taxes are an expense for the organization. Therefore in all likelihood, corporations will try to reduce this liability by showing fewer profits. Thus the government also needs accounting data to ensure that they have been paid their fair share in taxation.

  • Employees: Employees provide credit to the company in the form of their labour. They work immediately and expect payment at the end of the month, hence providing 15 days of average credit to the employer every month. They have a right to be concerned about the internal workings of the firm and whether they will be paid or not. Recent cases like the Kingfisher Airlines fiasco has brought to light the need that employees look at the financial statements of the companies that they work for. Employees of Kingfisher Airlines are struggling to make ends meet as their salaries have been delayed for months!

  • Managers: Managers are in charge of controlling the operations of the firm. However, control largely depends on the availability of correct information at the correct time. This function is served by accounting. Managers get periodic updates about the state of affairs and are in a position to conduct an analysis of the same and improve their performance in the forthcoming periods.

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