Shareholders: share owners are interested to see where money was spent, and the return on investments. They can then decide whether to hold, sell or buy more shares.
Employees: staff might want to assess the likelihood of pay increase and job security.
Managers: use financial accounts to judge the operational efficiency of their organisations. It can be useful for target setting and strategic planning.
Competitors: rivals are interested in the final accounts to make comparisons of financial performance.
Government: tax authorities examine accounts of businesses, especially large multinationals to ensure they pay the right amount of tax.
Financiers: financial lenders such as banks or business angels scrutinise the accounts before providing any funds.
Potential investors: private institutional investors use accounts and ratio analysis to assess whether investments would be financially worthwhile.
Frequently Asked Questions: Purpose of Accounts for Stakeholders
What is the purpose of accounts (financial statements) for different stakeholders?
Financial accounts (like income statements, balance sheets, and cash flow statements) provide crucial information about a company's financial performance, position, and cash flow. Different stakeholders, who have a vested interest in the company, use this information for various purposes specific to their relationship with the business.
What is the purpose of accounts for Owners/Shareholders?
Owners and shareholders need accounts to:
- Assess the profitability and overall financial health of their investment.
- Determine the value of the company.
- Make decisions about buying, selling, or holding shares.
- Evaluate the effectiveness of management.
- Understand how profits are being used (reinvested vs. distributed).
What is the purpose of accounts for Management?
Management uses accounts for internal decision-making and operational control:
- Planning, budgeting, and forecasting.
- Monitoring performance against goals.
- Making operational and strategic decisions (e.g., pricing, investment, expansion).
- Controlling costs and managing resources efficiently.
- Reporting financial performance to owners and regulatory bodies.
What is the purpose of accounts for Lenders/Creditors?
Lenders (like banks) and creditors (like suppliers) use accounts to:
- Evaluate the company's creditworthiness and ability to repay loans or debts.
- Assess the risk associated with lending money or extending credit.
- Determine interest rates and credit terms.
- Monitor the company's financial stability over the life of the loan or credit period.
What is the purpose of accounts for Employees?
Employees may use accounts, particularly in larger companies, to:
- Assess the company's stability and profitability, which impacts job security and potential for bonuses or salary increases.
- Understand the company's overall success and future prospects.
- Potentially inform negotiations regarding wages, benefits, and working conditions (especially in unionized environments).
What is the purpose of accounts for Government and Tax Authorities?
Government bodies and tax authorities use accounts to:
- Determine the company's tax liability (e.g., income tax, sales tax).
- Ensure compliance with accounting standards and relevant laws and regulations.
- Gather economic data for statistical purposes.
Are there other stakeholders who use accounts?
Yes, other stakeholders include:
- Customers: Especially for businesses relying on the company's long-term viability (e.g., warranties, long-term contracts).
- Suppliers: To assess the company's ability to pay for goods and services on time.
- Competitors: To benchmark performance and understand market dynamics.
- Regulatory Bodies: To ensure compliance with industry-specific rules (e.g., financial regulators for banks).
- The Public/Community: May use information for academic research, economic analysis, or understanding the company's contribution to the local economy.
