Evaluate the context and purpose of the accounting function in meeting organizational, stakeholder and societal needs and expectations

 


Information from a company's enterprise accounting is used by many stakeholders. Different parties utilize this information for different purposes based on their needs. In order to produce the reports required to satisfy the information needs of all interested parties, a commercial enterprise's accounting information system must be designed.

Internal users and exter

nal users can be broadly categorized into two groups when it comes to accounting data consumers. Investors, financial creditors, commodity suppliers, governmental agencies, the general public, clients, and employees are examples of external users, whereas managers and business owners are internal users.

 

3.1.1 Internal users

 

1.     Management

Management makes crucial judgments and implements the necessary steps to enhance company performance using accounting data to assess and analyze an organization's financial performance.

It is clear from a number of well-known management accounting books that one of management's main responsibilities is to create policies and procedures to accomplish organizational objectives.

 

They use it for

1. Making critical financial decisions, conducting research, and forecasting.

2. Deciding which investments to make and identifying risk and opportunity signs.

3. Making intentional, knowledgeable choices

4. Obeying all regulations, guidelines, and other external entities.

Table 1: Why Managers Used Accounting 

 

 

2.Owners

Small- and medium-business owners must comprehend how much money they have made or lost throughout the course of their operations. They make future decisions, like as expanding or contracting, based on accounting data. In order for owners to understand their income and expenses, they also want precise financial data.

 

They use it for

1. observing their investment and calculating the return on their investment

2. calculating the growth or decline of their investment

3. monitoring the general state of the company.

Table 2: Why Owners Used Accounting  

 

3.Employees

Several businesses provide their staff stock options, which increases interest in accounting information. They are used by other businesses to forecast growth and assess potential future earnings.

 

They use it for

1. Examining the company's overall financial situation since it has an impact on employees' pay and job security. 

2. Choosing between share-based pay options, such as ESOPs provided by companies.

3. confirming that the employer is making the necessary contributions to the necessary organizations, such as the provident fund, 401(k), etc.

Table 3: Why Employees Used Accounting  

 

1.1.2      External users

Information from financial accounting is frequently used exclusively by external users.

 

 

1.Investors

In corporate business arrangements, ownership and management are often separated. Investors usually provide capital, and management is responsible for overseeing daily operations. With this information, investors can predict a company's future growth and profitability. They determine whether to boost or decrease their forthcoming investment based on this knowledge.

They use it for

1. Assessing how the management is using the stock that was invested in the company.

2. Deciding whether to leave the company or boost investment there

3. assessing their present financial standing or, if a potential investor, their present firm investment

Table 4: Why Investors Used Accounting 


 

1.Lenders

 

Lenders are people or organizations that commonly lend money to businesses in exchange for interest payments. They need accounting data to evaluate the business's financial health and to be reasonably confident that they will be able to get their principal and interest back.

They use it for

1. An assessment of a company's current and future financial health

2. Use ratio analysis to learn more about characteristics like profitability and liquidity.

3. Financial ratios are used, and the three primary accounting financial accounts are examined, to determine creditworthiness.

Table 5: Why Lenders Used Accounting

 

3.Suppliers

Suppliers are people or organizations in the business world who typically sell goods or raw materials to other companies on credit. They make a decision regarding whether or not to continue providing goods on credit based on accounting data that forecasts the company's potential future creditworthiness.

 

They use it for

1. Assessing the customers' ability to pay them back in order to determine their dependability.

2. setting up credit conditions and a credit limit for their clients.

3. determine whether or not to continue offering items on credit by learning more about the company's potential creditworthiness.

Table 6: Why Suppliers Used Accounting

 

 

4.Government agencies

Data from commercial accounting systems is used by the general public.

 

5.General public

Data from commercial accounting systems is used by the general public.

 

They use it for

1. An effective teaching tool for students of accounting and finance

2. A useful source of information for anyone curious about how businesses impact people and the economy in general.

3. A source of information on the prospects of a company

4. A resource for information for people searching for work.

Table 7: Why General Public Used Accounting 

 

 

6.Customers

Accounting information can be used by customers to understand the current state of a corporate organization and forecast its future. Customers can be categorized into three groups: end users, wholesalers & retailers, and manufacturers or producers at various stages of production. Accounting information is essential for all three categories of clients because of these traits.

 

They use it for

1. Monitoring stock movement and overall production rate

2. Evaluating the financial standing of its suppliers, which is necessary to keep a steady source of supplies.

Table 8: Why Customers Used Accounting 

 

7.Employees

Financial statistics may be of interest to employees who are not part of a company's core management because they will have an effect on the success or failure of the business. A prosperous and successful firm offers perks such as retirement plans, increased salary, professional advancement, and job stability (Javed, 2022)

 

 

The accounting process produces financial reports or information, which is then made available to the public in both internal and external formats. The SEC, the tax authorities, the chamber of commerce, the press, competitors, auditors, labor unions, clients, suppliers, these entities are examples of external users (iEduNote, 2022).

 

Internal Users  (Primary Users)

External Users (Secondary Users)

Internal Management

Investors

Proprietors/ Partners

Lenders

Employees

Legal Bodies

 

Customers

 

Suppliers

 

General Public

 

Government

 

Researchers

Table 9: Internal and External Users   







References



Available at: https://www.investopedia.com/terms/a/accounting.asp

Gerber, B., 2022. Accounting department.. [Online] 

Available at: https://www.accountingdepartment.com/blog/bid/333802/What-s-an-SLA-and-WhyDo-You-Need-it-When-Outsourcing-Accounting [Accessed 05 October 2022]. hbpublications, 2020. hbpublications. [Online] 

Available at: https://hbpublications.com/2020/06/17/the-5-step-budgetary-control-process/ [Accessed 10 October 2022].

iEduNote, 2022. iEduNote. [Online] 

Available at: https://www.iedunote.com/budgetary-control [Accessed 22 September 2022].

iEduNote, 2022. iEduNote. [Online] 

Available at: https://www.iedunote.com/users-of-accounting-information [Accessed 31 August 2022]. 



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