Identify any FOUR users of financial statements and explain their needs for accounting information. (8 marks)
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a) Investors are those who provide risk capital i.e. mainly shareholders. They are concerned with the risk inherent in and the return provided by the business. They need information to help them determine whether they should buy, hold or sell their holdings. They also need information to assess the ability of the business to pay dividends.
b) Employees of the business and their representative groups are interested in information about the stability and profitability of their employer. They need to assess the likelihood of future employment and increase or decrease in remuneration packages. They will also be interested in retirement benefits and employment opportunities/advancement.
c) Lenders: These consist of debenture holders, banks, lessors, other financial institutions, other businesses etc. They are interested in information that enables them to determine whether their loans, and the interest attached to them, will be paid when due.
d) Suppliers and other trade payables: These are people the business owes money to. They are interested in information that enables them to determine whether amounts owing to them will be paid when due. Many suppliers will also be interested in the long term survival of the business if the business is their major customer.
e) Customers or trade receivables: Customers have an interest in information about the continuance of the business especially if they have bought goods with guarantees etc. if the business is a major supplier of goods to them they will wish to know that that supply will continue into the future.
f) Governments and their agencies: Governments are interested in the allocation of resources within a country and of course the collection of revenues such as taxes from individual businesses. They will require information on the activities of the business to regulate them, determine taxation policies and assess the basis for national income and similar statistics.
g) The general public: The most interested ‘public’ are generally those that live in close proximity to the business. They will wish to know if the business makes a contribution to the local economy and what effect it has on the local environment, for example in terms of pollution. They will wish to know the number of people the business employs from the locality, their patronage of local suppliers and the possible effect on the locality if the business ceases to operate. (Any 4)