Q:

What are external users of accounting information?

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Quick Answer

External users of accounting information are parties outside the operation of a business who use its accounting and financial information in making important decisions. Examples include customers, investors, tax authorities, creditors and regulatory authorities. Since these users do not have direct access to accounting information, they are given access to records by the business in the form of financial statements.

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Full Answer

A creditor, such as a bank, may need to know the liquidity and profits of a business. This information is necessary during loan applications. Also, investors may need access to the internal operations of a company. The issuance of financial statements to parties such as these helps them to understand the performance and operations of the company. This information may be used by the creditors, investors and other parties to design business plans and to make vital decisions regarding the company.

Customers may also need to know a company´s information to determine the financial state of its suppliers. This lets them determine if the company is capable of ensuring a stable source of supply. One of the main objectives of accounting is to provide enough information required by external users to make right decisions. In the long run, the access to such information helps to benefit the company in many ways.

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