Who Uses Accounting Information?

Users of accounting information can be internal or external to the company. Internal users have another contract with the company, usually an employment contract, so they have a closer relationship with the company than external users. Let’s take a look.

Internal Information

Internal accounting informationInternal Accounting Information:
A company arranges information for management’s decision-making purposes. Internal accounting looks different in each company and depends on the decisions a particular company is trying to make. Also called management accounting. Contrast with external accounting. looks different in each company and depends on the decisions a particular company is trying to make. Essentially, financial information for internal users is flexible; this information is meant to answer a particular problem. For example, a marketing manager might be interested in making sure the company has enough cash in the bank to introduce and market a new product line. Or human resources may want to know how much money is available for employee training. Every department in a company uses accounting information on a regular basis to make decisions, so internal information users will likely need to understand accounting to progress in their careers.

Internal Information Users

Managers.

When we refer to internal users, we usually mean managers such as the Chief Executive Officer (CEO), the Chief Financial Officer (CFO), Chief Operations Officer (COO), Controller, or Head of a Division. These managers use information to make decisions for the company. For example, a manager may ask whether the company should expand operations, how much to pay employees, whether to hire more employees, which supplier to purchase from, or how much to charge for a product or service.

Employees

are another internal user of financial information. Employees have information about a company’s culture, processes, and other aspects related to their respective job position. How are managers and employees different? While managers have high-level leadership positions, employees deliver on the managers’ decisions. If we use the example of a pharmaceutical company, employees may work in labs developing new drugs, or may visit physicians as salespersons (providing samples and information). Accountants, marketers, and product developers are also examples of employees.

What decisions might an employee want to make? Consider that an employee—a lab technician for example—has many employment opportunities. A lab tech may work for a pharmaceutical company like GlaxoSmithKline, but there are many other companies in the industry where they could work, like AstraZeneca, Merck, or Pfizer. An employee will use the information available to her to decide whether to stay at her current employment or work elsewhere. This decision will hinge on salary, opportunities for career progression, corporate culture, vacation time, and office location among other considerations.

What kind of information is important to make employment decisions? An employee might look at indicators of financial health such as profit to determine whether a company can sustain its workforce, and whether the company is able to increase wages over time. As an employee, maybe you’d want to know if you can negotiate a pay increase or if company can afford to pay you a performance bonus. Or maybe you’d be interested in how much the employer pays into your pension. Accounting information gives employees power to make good decisions about where to work, and power to negotiate better employment contracts.

In truth, employees make decisions based on internal and external sources of information. They have internal information about the company they work for, and external information about potential employers. Now that we’ve discussed internal users and the financial information they might use, let’s take a look at external information and users.