Regarding the users of financial statements and their information needs 49

REGARDING THE USERS OF FINANCIAL STATEMENTS

AND THEIR INFORMATION NEEDS

Luca Mihaela, Teaching Assistant

UNIVERSITY OF BACAU

Abstract:
In order to satisfy the information needs of users from inside and outside the organizations,
accounting elaborated a proper method of generalization and synthesizing of information it
produces, which involved the development of some appropriate tools, known as financial
statements. For users outside the company, these are often the only source of information available
directly from the organization. The knowledge of the interests of different categories of users has an
important role in trying to improve the quality of financial statements, which should allow taking
correct decisions based on the financial position, the results of economic and financial activity and
the changes in the financial position of the company.

Producer of specialized information, grouped, according to general features of the

the accounting present a special offer. responsibilities to be met, in:
Logically, we must know “the product” users, - senior managers or top-managers
the requirements imposed, inclusively the (president, general director or board of
purpose for which each beneficiary will use directors, vice-president, commercial director
this specialized information system – if he is directly subordinate to the general
[Horomnea, E., Fundamentele ştiinţifice ale director and doesn’t exist the position of vice-
contabilităţii. Doctrină. Concepte. Lexicon, president etc.), whose main skills are the
Ed. Tipo Moldova, Iaşi, 2008, p. 171]. strategic orientation of the organization as a
The Framework for the Preparation whole, in line with the mission and objectives
and Presentation of Financial Statements settled, and the formulation and
presents a classification of different users of implementation of efficient and effective
financial statements that include seven classes strategies, their decisions being mostly
of users (investors, employees and groups strategic and tactical;
that represent them, lenders and suppliers, - middle managers (division
customers, governments and their agencies manager, director of production – when exists
and general public), with their information the position of vice-president, head of
needs. department, head of service - if he has office
The reason for the absence of the heads like subordinate etc.), whose main skill
managers in this classification is that, even is to ensuring the effectiveness of activities
they are interested in the information and the development of harmonious
contained in the financial statements, they can interhuman relations, their decisions being
anytime access additional management and mostly current and tactical;
financial information, that helps them carry - first line managers or supervisors
out their planning, decision-making and (regional sales manager, assistant of the
control responsibilities. Moreover, the human resources manager, head of project
management has the ability to determine the team, head office, supervisor etc.), whose
form and the content of such additional main skills are using tools and methods,
information in order to meet his own needs. concretely implementation of specific
knowledges and management processes, their
The internal users informing decisions being integrally current.
The internal users of financial In conclusion, the managers have the
information are represented by the managers responsibility for enterprise exploitation and
(the leaders) of an organization, which can be the achievement of its objectives. In the small

Studies and scientific researches Edition: Economics, no. 13 (2008)

50 Regarding the users of financial statements and their information needs

enterprises, the manager may coincide with organization or information in a form that
the business owner. distort the economic and financial reality of
As internal users of financial the company (an important role in this latter
information, the managers won’t expect and case have the censors and/or financial
they are not limited to information in the auditors).
financial statements. They have immediate Although they benefits from
and full access not only to public information information asymmetry in relation to external
of the company, but also to internal users, the managers pay particular attention to
information from the organization. Their how the published information are perceived
information needs are covered, essentially, by them [Malciu, L., Cererea şi oferta de
through unpublished statements, prepared, not informaţii contabile, Ed. Economică,
only on the basis of financial accounting, but Bucureşti, 1998, p. 28]. The reason of this
also of managerial accounting. interest is the fact that the financial statements
Decision-making roles of managers, inform the third party over the managerial
according to some opinions presented in the ability. In other words, the managers use the
specialty literature, are four: entrepreneurs, information from the financial statements,
disturbance regulators, resource distributors specially, not to make decisions, but to
and negotiators. communicate.
It results that in their activities,
managers have usually many and varied The external users and their
targets, often complex. These objectives may information needs
refer to best adapt the organization to the The financial statements are an
conditions it operates by changing the important means through which accounting
organizational structure or by introduction of information is communicated to decision-
some new products or by improving existing makers. For the users from outside the
ones, finding the right response to an organization, these are often the only source
aggressive advertising campaign of a of information available directly from the
competitor, correct elaboration of budgets, company.
deliver quality goods and services, realized In the following we present the
with a minimum cost, maintaining an information requirements of external users,
acceptable level of income, resolving the correlated to the information offer by the
disputes existing in the company and between economic institutions through their financial
the company and its environment, increasing statements, strarting from the classification of
the number of available jobs, protecting the the users in The Framework for the
environment etc. Preparation and Presentation of Financial
To ensure the success and survival in a Statements which grouped them into seven
competitive economic environment, the categories already mentioned in this article:
management needs to focus on two main investors, employees and groups that
objectives: profitability and liquidity. These represent them, lenders and suppliers,
indicators can be found in the explanatory customers, governments and their agencies
notes to the financial statements. and general public.
An important role of managers is to The International Accounting
make the reality existing in the organization Standards Board (IASB) recognizes that not
compatible with the needs and expectations of all user requirements can be satisfied by the
other users. financial statements. It follows, however,
The external users want to have more implicitly, that investors are privileged users.
information about the organization and its Therefore, satisfying their information needs
activities, information they can trust for will meet the needs of most other categories
taking the best decisions, while managers are of users [Gîrbină, M.M., Bunea, Ş., Sinteze,
interested to public, when they are not forced studii de caz şi teste grilă privind aplicarea
through the law, only information that allow IAS (revizuite) – IFRS, Volumul I, Ed.
them to create a favorable image of the CECCAR, Bucureşti, 2005, p. 22].

Studies and scientific researches Edition: Economics, no. 13 (2008)

 Regarding the users of financial statements and their information needs 51

In what follows, we tried to present the income statement. Moreover, the

more detailed the information needs of preference for the increasing value of the
external users of financial statements, the enterprise make the statement of financial
manner and the measure these are satisfied by position to be privileged to the income
the current content of the financial statements. statement.
Investors (shareholders, associates), A large number of studies on investors
as providers of capital are concerned, needs highlighted the interest of this group for
primarily, over the risk of investment they forecasted information, making necessary the
have been committed or intends to engage and publication of some budgetary information in
the profitability which it produces or will the completion of financial statements. These
produce. variant isn’t applied in practice yet, probably
According to some authors opinion, at least two reasons: the future is uncertain,
the risk relates to uncertainty “that matters", the disclosure of certain forecasted
the one who is able to influence the information may be contrary to the interests
expectations of owners. In financial theory it of the company when it acts in a competitive
is considered that the risk is divided into two environment.
parts: specific risk, which doesn’t depends on Even it is considered that the owners
the characteristics of value title, and (shareholders/associates) are privileged users,
systematic risk, which measures the aiming through the actual content of the
sensitivity of the title at the market financial statements, primarily, satisfying
fluctuations and which, on a equilibrate their information needs, it can be affirmed
market, is paid. Since the financial statements that they are not a homogeneous group and
are not providing a direct assessment for this therefore will not be met equally their needs.
parameter, investors requires information that Thus, those who hold privileged
help them to measure it. shares and who hold ordinary shares doesn’t
For a more accurate assessment of the have the same needs nor the same behaviour.
risk-return relation, information like: financial Since privileged shares entitle to a fixed rate
profitability of the enterprise (calculated as of dividends, their owners are more interested
ratio between the result and the equity), the in profits safety (the part they obtain is a fixed
earning per share (ratio between the net result rate no matter the profit level) than in the
and the number of shares), dividend per share increase of business (by growth will benefit
(ratio between the value of dividends and the ordinary shareholders only) [Malciu, L.,
number of shares), price earning ratio Cererea şi oferta de informaţii contabile, Ed.
(calculated as ratio between the exchange rate Economică, Bucureşti, 1998, p. 19].
of share and the net result per share), the In addition, the majority shareholders
capitalization of profits ratio (calculated by and minority shareholders do not always have
reversing the terms of the previously ratio), the same power to impose their requirements.
global investment yield (calculated as ratio Also, investors differ in terms of ability to
between the dividends per share and the interpret information and therefore the
exchange rate of share from the beginning of demand of professional investors is different
the financial year), have a great relevance for from that of non-professional investors. These
the investors. are only some examples which show that
Concretly, the investors are interested investors’ heterogeneity will lead, in
in the enterprise ability to achieve future consequence, to a heterogeneous information
earnings and to increase its wealth, taking into request.
consideration the monetary flows released, The employees and the groups that
which have a tangible representation, and less represent them require, in general, relevant
net benefit, which doesn’t reflects always the information on future prospects of the
real enrichment of the company. In organization (stability, profitability etc.), on
conclusion, the information provided by the job security and validity of pension plans, on
statement of cash-flows are more important manners and levels of remuneration, on nature
for the investors than those offered through and extent of professional opportunities. Such

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52 Regarding the users of financial statements and their information needs

information can help them to increase the promotions, unemployment, absenteeism

involvement in the company, the interest in etc.), the remuneration and other related
work. expenses (the total amount of remuneration,
The profitability, determined on the the remuneration hierarchy, the manner of
basis of the information offered by the income calculation, other related expenses, the
statement, reflected also in the balance sheet, financial participation of employees etc.), the
is an essential piece of information in their conditions of hygiene and safety (accidents at
preparation for negotiating the increases of work and on road, the distribution of the
the wages or the improving of working accidents on material elements, occupational
conditions and is also a premise for diseases, expenses for security etc.), other
employment security. For employees and for working conditions (the duration and
investors it present interest not only the organization of working time, the
overall performance of the entity, but the organization and content of work, the physical
performance of each sector, which help them working conditions, the work medicine etc.),
to verify and understand the managers' training, professional relations, other living
decisions on the extension or restriction of conditions that depend on enterprise.
particular activities. In the event that the company of our
In the explanatory note to the financial country would be compelled to draw up a
statements nomber 8 Information on the social balance, it should contain, therefore, all
employees and members of the board, areas that relate to the living conditions of
management and supervision, according to employees in their work, giving value to
romanian accounting regulations, there must positive aspects and shortcomings of social
be mentioned some information which present policy. Only part of the necessary information
interest for this category of users: the average to be summarized here can be obtained
number of the employees of the organization, through the accounting.
detailed for each category, wages paid or The lenders, namely banks and other
payable in the current year, expenses on credit institutions, in assuring the financing of
social security and other expenses for pension the company, are primarily interested in its
contributions. solvency, which meens its ability to repay the
Regarding professional opportunities, loans and interests on term, and does not grant
these information knowledges can stimulate loan without a rigorous analysis of the
the workers to follow different training organization's financial situation and its
programs, other than those offered through performance, more specifically, an analysis of
the organization, to continue their studies, the liquidity and the profitability of the
aspects that will have a beneficial influence enterprise and the system of guarantees that
over the future business of the entity. may benefit.
Sometimes the interest of the To determ the capacity for repayment
employees is oriented on information beyond the loans it is necessary to valuate the assets
the field of the financial accounting, such as and the liabilities of the enterprise, for
the incidence over the working conditions of prudential, to their liquidation value.
the production programme, the general Therefore, some values of the assets are
evolution of the orders, the forcasted reduced, others are ignored and the values of
measures for improve, transform, replace the the liabilities are increased.
equipments or the methods of production and The estimation of earnings expected
exploitation etc. by the creditors, in other words the interest, is
As a result of pressure coming from in line with the risks of lending operations.
the employees and the unions over the The determination of these risks can be
businesses, in some countries of the world, achieved on the basis of information
became compulsory the preparation of a concerning: the personal, moral and technical
social balance that includes, in general, value of managers; the general situation of the
information on: the posts (efective posts, branch; the general situation of the enterprise
foreign workers, employments, departures, (the nature, the quality, the price of the

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 Regarding the users of financial statements and their information needs 53

products, the key customers and suppliers, information which present interest to them are
etc.) and other information obtained from those relating to the prices used by the
inside or outside the company. As a rule, company, the possibility to get some price
there are some preset levels of interest that reductions, the possibility to get after-sales
choose between. services (such as maintenance, repairs), the
A particular attention is given to the maximum amount of commercial loans
liquidity and profitability indicators of the received, the time for pay accepted by the
company. In this regard, the creditors assure company etc.
that the short term loans arn’t used to finance The governments and their agencies
fixed assets, and the company has the ability have a dual role, on the one hand regulators of
to create profit, which is a guarantee of the the accounting, and on the other hand users
ability of the company to repay on time the of the information contained in the financial
loans received and to pay related interests. statements.
The guarantees required for giving As guarantor of the general interest,
credits may take various forms: real imobil the state is directly or indirectly involved in
guarantees (mortgages), real movable the regulation of accounting, to provide users
guarantees (pledges with or without a minimum quality of information published
dispossession), assignment of claims, letters and to attenuate the information asymmetry
of guarantee, payment instruments in bank existing between different categories of users
circulation and endorsed in favor of suppliers [Feleagă, N., Ionaşcu, I., Tratat de
etc. contabilitate financiară, vol. I, Ed.
Such information and further Economică, Bucureşti, 1998, p. 54].
information can be obtained directly from the The governments may settle to be
financial statements of credited company or presented in the financial statements other
may be requested from the company information than those existing or additional
concerned to obtain foreign financing (not all information for its own purposes, but to
enterprises are willing to provide additional influence the financial statements in a manner
information, giving a particular importance to that meet the needs of others users.
the nature of these information). As a user, the state needs information,
The suppliers are primarily interested primarily for fiscality reasons, to determine
to check the measure to which the debtor the calculation of the base for taxes and
company will be able to carry out its financial follow the taxpayers pay them on time.
obligations, analyzing the solvency of the Fiscal legislation that applies to
company and other information which allow Romania is based on information provided by
the assessment of compliance with payment accounting, because the fiscal result is
fixed date. dependent upon the accounting result. The
They also want to know what is the statement of financial position helps the
probability to continue the business, paying control of the fiscal authority over the
particular attention to development prospects payment of the enterprise obligations on time
of partners, which could have positive and prevent fiscal evasion [Feleagă, N.,
consequences in the future on their activities. Ionaşcu, I., Tratat de contabilitate financiară,
In the explanatory notes they find vol. I, Ed. Economică, Bucureşti, 1998, p.
information regarding the compliance with or 54].
the breach of the going concern principle, and Besides the above, the state needs
depending on the other information from the information to assess the various demands
financial statements, from several years, they regarding the offer of low interest grants or
may appreciate the chances for economic loans, to manage the national accounting, to
growth of the enterprise. prepare the statistics on the macroeconomic
The customers, like other users, need level, to make economic forecasts etc.
information to assess the continuity of the The general public is practically
business and its growth prospects, in order to represented by any user that has not been
estimate the risks in their supply. Other mentioned explicitly in The Framework and

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54 Regarding the users of financial statements and their information needs

which is interested in the accounting the quality of information provided by the

information produced within an economic financial statements:
organization. - providing forecasted information, in
For example, in this category of users a normalized form to ensure the comparability
can enter: polical responsibles of the local over time and space, because the decisions
community concerned with the contribution taken on the basis of financial statements
of the company to the development of local refers, in large part, to the future; in the
economy by creating jobs, training employees normalization of the structure which provides
etc.; the environmental and consumer forecasted information should be taken into
protection movements attentive to the consideration many factors, so that this
consequence of the business over the presentation don’t generate additional costs in
environment and over the quality of life; the the form of competitive disadvantages for the
researchers interested in the shape, content organizations, costs with installation of new
and quality of financial statements; the reporting systems or other disadvantages;
competing companies concerned with - the obligation of preparation the
evaluating the position on the market; the statement of cash-flows by every legal
consumers interested in whether exist or not a persons, taking into account the distortions
monopoly and the measure they could be which affect the information in the income
exploited; the courts that give a particular statement (due to the possibility of choosing
attention to the legal evidence, dedicated to between different methods of valuating the
help in establish the truth and correct stock outputs, different periods, methods of
resolution of cases at the stage of research or amortization the fixed assets, the influence
judgment. exerted by the fiscality etc.);
Of course, limiting the categories of - developing a social balance by all
users is not possible, because demand for economic companies, including, in a
information can come from any person who normalized form, the information in the
will base his decisions in accordance with the explanatory note to the financial statements
relation he has and the information he know number 8, and items that can not be expressed
about an economic agent. Moreover, in in value, but which presents interest to users,
practice, these categories of users may be like information referring to the security of
confused and may have a multiple position to employment, the conditions to be met for
the same company. promotion, the trainings, the professional
Analyzing the demand for accounting relations, the conditions of hygiene and safety
information coming from the different etc.;
categories of users, it can see, the existence of - adding an additional explanatory
common information needs (related to the note which present the risks over the
solvency, profitability, liquidity, growth organization and the estimations of adverse
prospects of the company, business continuity effects, as well as the actions taken to manage
etc.) and some distinct needs depending them;
particularly on different vision on certain - the specification by the regulators
aspects. of some additional general information
Taking into account the requirements referring to the enterprise which should be
of different users, which are not satisfied by presented in the explanatory note number 10,
the current contents of the financial even if these can’t be value expressed.
statements, we present some ways to improve

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 Regarding the users of financial statements and their information needs 55

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CECCAR, Bucureşti, 2006
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Orizonturi Universitare, Timişoara, 2005
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Studies and scientific researches Edition: Economics, no. 13 (2008)