Users of Accounting Information

Name: – Nilashish Ghosh Dastidar (Roll No. – 8) Class: – PGDRM (2012-14) ASSIGNMENT: – BRIEFLY STATE THE USERS OF ACCOUNTING INFORMATION. Accounting Information provides quantitative and qualitative information about the various transactions and events of an accounting entity. The Accounting Information system of the accounting entity captures quantitative data and processes the pecuniary transactions related to the functioning of the same.Contemporary systems like ERP also encompasses in its scope the traditional quantitative Accounting Information besides some qualitative or non-financial information like customer satisfaction quotients, employee satisfaction quotients and product or service quality. Accounting Information is utilized for â€Å"predicting†, â€Å"comparing† and â€Å"evaluating† the earning power and financial health of the said entity by a set of users. Today, all types of organizations, from manufacturing behemoths like Tata Steel, Reliance Industries Limited etc. o Small & Medium Enterprises have need for Accounting Information. Every sector of the economy, from Manufacturing to Service to Retail and even Non-Profit organizations like NGOs, require such Accounting Information. The users of Accounting Information for any accounting entity are broadly classified into Internal and External categories. A) Internal Users – This category of users are associated with the management of the concern for which the Accounting Information is sought to be collected and provided.They include the individual and collective decision making bodies in the concern such as the Owners on one hand and the team, departmental, regional and top Managers of the entity. All Officers, Managers and the Directors/Partners come in this group of users. Occasionally, the internal Auditors would have to refer to past financial information statements of the entity and thereby become an internal user of Accounting Informa tion. The internal users generally rely on any Source Document/s (documentary evidence of transactions like Bills, Cash-Memo etc. ), P/L Account, Income & Expenditure Account, Balance Sheet, Cash Fund Flow Statements, Balance Sheets, Explanatory Notes & Schedules Of Workings Annexed To The Financial Statements & also Planning & Budgetary information. (1) Owners – They need Accounting Information mainly to determine the prospect of the investments already made, the solvency of the operation, the efficiency and profitability of the business and the optimum capital/resource utilizations. (2) Managers – This group of users generally and uniformly requires the Accounting Information for the planning, operating and controlling aspects of the concern.B) External Users – The external users consist of two distinct sub-groups – the Financial Group and the Public Group. Unlike the internal users, the need of the external users with regard to Accounting Information i s explicitly different from group to group. Though they generally rely on the similar sources of Accounting Information like Internal users – that is, P/L Account, Balance Sheet, Notes & Annexure Attached To The Financial Statements, however, there are also some specialized types of Accounting Information demanded by the External users like Tax Returns, Trade Policies etc. 1) Financial Group consists of the Investors, Lenders/Bankers and Suppliers/Trade Creditors of the concern. a) Investors – need Accounting Information to decide about the risk factor involved in making investment and in holding on to the equities they already have in the said entity. The profit and loss statement of the entity would also motivate them to either increase or decrease their stakes. b) Lenders/Bankers – assess the confidence of the payment of interest and the repayment of the principal on the loans extended to the entity by the latter based on the Accounting Information. ) Supplie rs/Trade Creditors – for them, the Accounting Information provide with a reasonable idea on the credibility of the entity and thereby allowing them to decide whether to continue to supply (credit sale) inputs to the said entity. (2) Public Group comprises of the Government Agencies & Tax Authorities, Industrial Authorities & Research Workers, Labour Unions, Employees & Customers. a) Government & Tax Agencies – As because the financial health of the nation is ultimately the responsibility of the Government, hence any economic activity today is controlled and regulated by the same.It has to judge the prospect of a business and the mode of its functioning. Naturally, it would require any information to decide proper allocation of natural resources, impose duties etc. The Tax authorities would need to judge the appropriate tax levies on the entity. b) Labour Unions & Employees – both rely on the Accounting Information to assess the health of the entity since their p resent and future benefits and growth are both essentially dependent on the fortunes of the said concern. ) Customers – they range from the process owners in the manufacturing or service chains linked to the entity in question to the wholesalers/retailers stocking on the product or services from the entity and ultimately the end-consumers. Depending upon the assurance of continuity of the entity, will these customers be ready to maintain their association with the concern or switch over some substitute/competitive entity. d) Industrial Authorities & Researchers – The Industrial regulators need information to take decisions regarding subsidies, grants, relief etc.The Researchers need information to carry out analyses and research on the entity’s operation. DIAGRAMMATIC REPRESENTATION OF THE USERS OF ACCOUNTING INFORMATION: – ———————– CATEGORY OF USERS OF ACCOUNTING INFORMATION INTERNAL USERS EXTERNAL USERS FINANCIAL GROUP PUBLIC GROUP – OWNERS – DIRECTORS – MANAGERS – OFFICERS – AUDITORS – INVESTORS – LENDERS – BANKERS – SUPPLIERS – TRADE CREDITORS – GOVT. AGENCIES – LABOUR UNION – EMPLOYEES – CUSTOMERS – INDUSTRIAL AUTHORITIES