Describe the users of accounting information. Why do they need such information? Explain.

Accounting information is designed to meet the common information needs of decision makers, and its users are broadly classified into two groups — internal users, who are the various levels of management, and external users such as investors, lenders, suppliers, analysts, employees, customers, government and the public.

Internal users:

1. Board of Directors (BOD): the top level of management, elected from the AGM, which formulates short-run and long-run plans and policies — impossible without accounting information.
2. Managers: they implement the BOD's policies and need reliable information for planning, organizing, directing and controlling, so as to utilize resources effectively, review short-term and long-term solvency, and judge profitability in terms of turnover and investment.
3. Accountant and others: the accountant records and processes all business activities; business consultants and legal advisors also require the information for their work.
4. Management's special interests: where managers receive commission or bonus tied to profit, they have a natural interest in how those numbers are computed, and when facing a hostile takeover attempt they communicate additional financial information to boost the stock price. Management may also use the information to identify and acquire an undervalued business.

External users:

1. Investors/shareholders: they need to know the return on their investment and the risk attached, and whether the company can pay a regular dividend, so as to decide whether it is profitable to buy, hold or sell the investment.
2. Lenders: banks and debenture holders need to judge the borrower's financial stability — whether loan and interest can be repaid on time, what security should be taken and what interest rate should be charged — and to monitor the borrower's condition afterwards.
3. Short-term lenders/trade creditors: they need to know whether the amount owed will be paid on the due date and whether credit should be extended, maintained or restricted.
4. Suppliers: they rely on the company's performance to decide whether supplies can be provided on credit, for how long, what the risk of bad debt is, and whether the company will remain a major customer.
5. Rating agencies and security analysts: equity analysts, bond analysts, stock brokers and credit rating agencies need the information to advise the public through newspapers, television and seminars; their concerns are essentially the same as those of investors and lenders.
6. Employees and trade unions: they need to know the stability and profitability of the organization since compensation depends on it — how much wages the company can afford, whether it will continue in business, and whether it can honour pension, health and other retirement obligations.
7. Customers: they need assurance that the company will continue as a reliable and economical source of supply and will service its products and honour warranty obligations, which matters most where dependence is long-term, as with vehicles and electronic goods.
8. Government and regulatory agencies: they need the information to regulate company activities, to decide whether an industry should be protected or taxed more, to check overcharging of consumers, and to ensure proper disclosure as required by law; the stock exchange needs it for efficient capital market operation.
9. Tax authorities: they need it to assess tax payable and to detect tax evasion.
10. The public: the local community, consumer groups and environmental activists need to know whether the company exploits local suppliers, whether its products are safe, whether it takes adequate pollution control measures and whether it hinders competition.
11. The common reason behind all of them: each group faces a decision it cannot take on intuition — to invest, lend, supply, work, buy, tax or regulate — and accounting information, being prepared on GAAP and hence understandable, relevant, reliable and comparable, is the only standardized basis available to them; that is why accounting is called the language of business.

Hence, accounting information serves a wide circle of users, each approaching it with a different question but all depending on it for a rational economic decision.