who are internal and external users of a company's financial statements?

Question

What purpose is this information used for?

Answer 1

Internal users are the people involved in the daily running of the business: directors, managers, staff. They use this information to see if the company is on the right track and operating profitably. Employees like to feel that they are working for a financially sound company and that they have a future with the company. Directors salaries and bonuses are often linked to performance and therefore they would also like to know the financial results of the company.

External users are users who are not involved in the daily operating of the company ie: shareholders, creditors, The Inland Revenue Service, banks, suppliers, debtors, government. They rely on the information to assess how much funds to can borrow or what taxes should be paid. As they do not have access to the internal records of the company, they rely on the information published in the financial statements. To ensure that the information is a reasonable account of the current position and trading results of the company, auditors are appointed to assess the statements made in the financial statements and report on them.

Answer 2

Financial statements are primarily for outside users. For example, if the company wants to borrow money -- from a bank or in the bond market -- potential investors will want to see how healthy the company is. Similarly, current investors will want some assurances that their investment is a good one.