Accounting can be defined as an information system that provides information about the results of a business' performance and its economic position.
The main objective of a business is to maximize profit. The goal of maximization of profit cannot be materialized unless there is constant monitoring by those charges with management and governance. Accounting asks as a language through which the business speaks for itself.
Financial Accounting generates financial statements which provide information most relevant to users which are outside the company such as investors, lenders, government authorities, rating agencies, etc.
Users of the Financial Statements
The financial statements are meant for use by parties external to the entity which means people other than the management. The users include:
- Investors and Financial Analysts: they need the information to decide whether they should invest in the company or not.
- Employees: employees and their representative groups are interested in information about the solvency and profitability of their employers to decide about their careers.
- Lenders: lenders are interested in information that enables them to determine whether their loans the interest attaching to them, will be paid when due.
- Suppliers and other trade creditors: suppliers and other creditors are interested in information that enables them to determine whether amounts owing to them will be paid when due.
- Customers: Customers have an interest in information about the continuance of an entity, especially when they have a long-term involvement with, or are dependent on, the entity.
- Governments and their agencies: Governments and their agencies are interested in the allocation of resources and, therefore, the activities of entities. They also need the information to estimate the national income.
- Public: they are concerned about the company's contribution towards the economy, its corporate social responsibility status, etc.