Wednesday, August 12, 2009

users of financial information

information that is going out side of the company must be in compliance with the established accounting guidelines because outside users will be relying on this information to make a variety of decisions. these rules and standard are in place for the purpose of protecting outside users by ensuring that everyone understand the information and that it is accurate and useful.
we will look later at the characteristics of useful information , but we will start by looking first at the outside users of the financial information reported by a company.
Outside users are classified by various distinctions:
a- Direct VS. Indirect users : Direct users, or individual who are directly affected by the results of company, include investors and potential investor , employees, management , suppliers and creditors. these are individuals who stand to lose money financially if the company has financial problems.
Indirect users Ara basically those people or groups who represent direct users . they include financial analysts and advisors,stock markets and regulatory exchanges.
b- Internal vs. External- this distinction is rather obvious in that internal users are making decisions within the firm whereas external users are making decisions from outside of the firm about whether or not to continue, start or change their relationship to the firm.
because there are so many people who are using the financial information and using it for so many diverse reasons, there are a lot of different types of required information. some of the key reasons that people need this information are to:
1- make investment decisions
2- extent credit or not
3- assess areas of strength and weakness within the company
4- evaluate performance of management
5- determine if the company is in compliance with necessary regulatory rules.

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