Users require financial information for the purpose of DECISION MAKING. What decision is made and based on what information such decision will be made, depends upon the type of users i.e. whether he is creditor, lender or shareholder and so on. Therefore let’s first define the list of users.
Users of financial statements may be identified in a variety of ways. However an easy to remember way of identifying such users of financial statement, in my opinion is, considering the “organization, a system”.
The concept of “organization, a system” comes from organizational studies according to which organization is considered as a system operating in environment. A system placed in an environment is taking input from the environment, processing it so that value is added in the form of output and then delivering this output in the environment.
Using this concept, users of financial statements and their particular needs can be identified at each level of system i.e. at input, process and output level. Such as:
Input (to the organization)
- Suppliers of raw materials
- Employees as suppliers of services
- Lenders as putting their money in organization
Process (by the organization for value addition on input)
Output (produced by the organization)
Enlisted above are the most common users of financial statements. Besides these some other users might also be identified but they will fall under the broader category of input, output or process level. The coming pages define and explain in details the particular needs of financial statements users.