How Financial Information Meets the Needs of Non-Management External Users

This article discusses how financial information meets the needs of non-management external users, such as owners, creditors, customers, government, and suppliers. It also explores the qualitative characteristics that make financial information useful, including understandability, relevance, reliability, and comparability. Additionally, the article highlights the weaknesses in the provision of financial information, such as the impact of inflation, the specific time period covered, and the potential for fraud. The case study focuses on Unilever, a British multinational consumer goods company.

Accounting for
Business

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
How the financial information meets the needs of five different non-management external
users.............................................................................................................................................3
Qualitative characteristics that make information useful to users...............................................4
Weaknesses in the provision of information to these users.........................................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................7

INTRODUCTION
Accounting for business is concerned with recording of transactions of the business
organisation and on the basis of these transactions and income and expenditure by company,
financial performance is determined. This financial information is useful for several parties and
among these external parties, are also included. This study will discuss about how financial
information meet needs of external and non-management user. Discussion will be based on
Unilever, British multinational consumer goods company. It was founded in 1929 and is
headquartered at London, England.
MAIN BODY
How the financial information meets the needs of five different non-management external users
Non-management external users are those users for financial information who are not
involved in management of the company. Along with this they are also not part of the company
and its processes. Such non-management external users involve-
Owners and Prospective Owners- Owners are concerned with users who own company and are
authorised to get profits earned by the company. Company listed on Stock exchange has their
owners in form of shareholders and these shareholders get their return on the basis of financial
performance of company. Prospective owners are those who are willing to buy shares of the
company and seeking ownership of the Unilever (External users definition, 2021). Financial
performance through financial statement is important for them as this allows them to understand
what return they should expect and whether or not Unilever is a good option for them to invest or
not.
Creditors and Lenders- Organisations like Unilever require huge amount of investment and
capital to run their businesses without any difficulty. There are different sources from where
funds and investment for the business can be accessed by Unilever. Among these sources
creditors and lenders are also one of the sources of funding. Creditors and lenders who provide
credit to organisation are also important external users. Credit can be given by them when they
are sure that they will get their return on time and without any difficulty. This is mainly
3

dependent on financial performance and this is reflected through financial statements of
Unilever.
Customers- Customers are those external users who are users of services and products offered
by Unilever. They are the one that company develops their products for and offer them to fulfil
their requirements (Amirova, 2020). Customers are very important element within business and
they are also requiring to know about financial performance of the company. Customer can use
financial statements to understand whether or not company offer its products at fair price.
Customers also have a purpose to determine survival of company to honor their product
warranties. Survival of the company can also be determined on the basis of financial
performance through financial statements of the company.
Government- Government or regulators who are responsible for regulation of the activities of
the company are also external users for financial statement of the company. There are different
reasons because of which they use financial statements of the company and one of the reason is
to ensure that company is selling products at fair prices. Government can also use financial
statement to make sure that Unilever has conformed accounting standards and financial
transactions of the company are fairly recorded and transparently presented. Ensuring
compliance is a reason for government to use financial statements.
Suppliers- Suppliers are those parties who supply required material and input to organisation so
that final goods can be prepared and sold to customers (Umaru and et.al., 2021). Suppliers are
also important external users to use financial statement. Suppliers when supply material and
input at credit, it becomes important to determine ability of Unilever to pay off its credit. This
can be determined on the basis of financial statements.
Qualitative characteristics that make information useful to users
Understandability- This means that all users especially those who are not experts in finance are
able to understand financial information being presented through financial statement (Qualitative
characteristics of financial statements, 2021). This involves clear presentations of information
along with additional footnotes so that it can be easily understood.
4

Relevance- This means that different users such as owners, suppliers, creditors, government
have different needs regarding financial information. This involves reporting all different types
of information considering different users.
Reliability- This means that information in the financial statements should be reliable that
involves information must be free from material errors and biases and should not misleading. All
transactions should be faithfully presented. This should be such that decisions taken on the basis
of financial information does not get affected because it is not reliable.
Comparability- This means that financial information presented for a reporting period should be
such that it can be compared with financial information of previous reporting period (Herath and
Albarqi, 2017). For example- financial information of one quarter can be comparable with
financial information of previous quarter.
Weaknesses in the provision of information to these users
Inflation- This is one of the weaknesses that information does not consider inflation because of
which impact of inflation on assets and liabilities and this shows low value of assets and
liabilities. This can affect decisions based on value of assets and liabilities.
Specific time period- This is also one of the limitations in which financial statement are
developed for a period of one year and this ignores seasonal impact on business and its
performance (Donelson, Ege and McInnis, 2017). This is because every business has seasonal
effect and also there are other short term effects on businesses and these are ignored in this.
Prone to frauds- This is also a limitation in which committing frauds in context of financial
statements is very easy and they are often prone to frauds. This weakness affects all users as all
of them are looking for information that is fair and reliable and frauds can negatively affect
reliability.
CONCLUSION
Here it can be concluded that financial information and statements are useful for several
stakeholders outside organisation. This is why it is important that information should have
certain qualitative characteristics so that users can use information easily. However, there are
5

certain weaknesses of financial information provision that can affect users of information.
Unilever can increase reliability and trustworthiness by working on weaknesses and giving
additional information.
6

REFERENCES
Books and Journals
Amirova, R., 2020, April. USE OF INTERNATIONAL STANDARDS OF FINANCIAL
REPORTING IN SMALL AND MEDIUM-SIZED ENTREPRENEURSHIP. In The 12
th International scientific and practical conference «IMPACT OF MODERNITY ON
SCIENCE AND PRACTICE»(13-14 April, 2020). Edmonton, Canada 2020. 678 p. (p.
22).
Donelson, D.C., Ege, M.S. and McInnis, J.M., 2017. Internal control weaknesses and financial
reporting fraud. Auditing: A Journal of Practice & Theory. 36(3). pp.45-69.
Herath, S.K. and Albarqi, N., 2017. Financial reporting quality: A literature review. International
Journal of Business Management and Commerce. 2(2). pp.1-14.
Umaru, H.O and et.al., 2021. Do Auditor Firm Size and Financial Expertise of Audit Committee
Affect Voluntary Disclosure of Nigerian Banks?. Journal of Accounting Research,
Organization and Economics. 4(1). pp.92-103.
Online
Qualitative characteristics of financial statements. 2021. [Online]. Available Through: <
https://www.accountingtools.com/articles/what-are-the-qualitative-characteristics-of-
financial-statem.html>.
External users definition. 2021. [Online]. Available Through:
<https://www.accountingtools.com/articles/2017/8/22/external-users>.
7