The users of financial statements are the various stakeholders of a company that are concerned with the company's performance, progress and position during a financial year. The financial statements should provide useful information to the relevant users and stakeholders of the company with respect to their specific needs. The main users of financial statements and their needs are discussed below:
This is the most important group interested in the financial performance, financial position, financial adaptability, cash generation and cash flow status of the company. The shareholders and investors invest their money into the company and need the information from financial statements to asses the company's performance in terms of managing and utilizing their investments and generating profit out of it.
The lenders and creditors of a company are interested in the company's position in terms of liquidity and solvency. The financial statements of a company should provide relevant information to its various lenders and creditors so as to enable them to analyze the company's ability to pay its short and long-term liabilities and obligations.
The regulatory authorities and government agencies are concerned with the full and clear disclosure of information in the company's financial statements. The government ensures that the company prepares the financial statements in the light of relevant rules and regulations. ...
The disclosure of relevant information can strengthen the customer trust in the company.
General Public and Analysts
General public and analysts could be considered as the company's prospective investors or they may approach the company's financial statements to provide the information regarding the company's investment and profitability potential to the investors. They are concerned with the company's financial position and performance to analyze the future prospects of the company.
The company's management is also among the major users of financial statements. They need to draw useful information from the financial statements in order to realize the company's revenues and their share in the company's profitability. Apart from that, they also need information from financial statements to analyze the result of their performance throughout the year and make provisions regarding the future.
The employees are also the internal users of the company's financial statements. They are the one contributing their efforts in the company's performance and profitability. They need information from financial statements to evaluate how the company is compensating them for their efforts as compared to its overall profitability.
NECESSARY QUALITIES FOR FINANCIAL STATEMENTS
The financial statements should contain the following qualities so as to provide maximum useful information to the various stakeholders of the company:
The financial statements should be readable and understandable for all its targeted users. All the information and disclosures included in the financial statements should be well-presented to help the