Financial Accounting · Importance and purpose of analysis of financial statements

Users of Financial Statements and Their Information Needs

Updated 11 October 2026 · Fact-checked

Users of financial statements are the groups who rely on a company's accounts to make decisions. They include investors, lenders, employees, suppliers, customers, government and the public. To answer a question, identify the user, name the decision they face, then link it to the figures that help: profit, cash, liquidity or risk.

Understand Users of Financial Statements and Their Needs

Financial statements are prepared for people outside the business who cannot ask for tailored reports. These are the external users. Under the IASB Conceptual Framework, the primary users are existing and potential investors, lenders and other creditors. The framework says general purpose reports are aimed at them because they provide capital to the entity.

Each user group asks a different question. Investors ask: should I buy, hold or sell, and will I get a return? They look at profit, dividends, growth and risk. Lenders ask: will I be repaid with interest? They look at cash flow, security, gearing and the ability to pay interest.

Employees want to know if the business is stable and can pay wages, pensions and bonuses. Suppliers want to be paid on time, so they look at liquidity and payment history. Customers want a supplier that will survive, especially for long-term contracts or warranties. Government and tax authorities want to assess tax due, compliance and statistics. The public may want to know about the entity's impact on the local economy, jobs and the environment.

Internal users, such as managers and directors, work inside the business. They can get detailed management accounts tailored to their needs, so they do not depend on published financial statements. Financial statements are mainly for external users.

Financial statements cannot meet every need. They show past results, use estimates and do not cover every non-financial factor. Analysis, such as ratios, helps users turn the numbers into decisions.

Key formulas to remember

Primary users (Conceptual Framework): Primary users = existing and potential investors + lenders + other creditors; These groups provide resources to the entity and cannot demand information directly. Other users may find the reports useful but are not the primary target.
Internal vs external users: Internal = managers and directors; External = everyone else; Internal users can request management accounts. External users rely on published financial statements.
User-to-need link: User → decision → information needed; Use this chain in every written answer. It stops you listing users without explaining their needs.

How to solve Users of Financial Statements and Their Needs questions

Use this method for any question asking who uses financial statements and what they need.

1Read the question and note the user group or scenario named. Check whether it asks for one user or several.
2Classify the user as internal or external, and as primary or other, if relevant.
3State the decision this user faces, such as lend, invest, supply on credit or stay in a job.
4Link the decision to the information needed: profitability, liquidity, cash flow, gearing, stability or tax.
5Name the statement or ratio that gives that information, such as the statement of cash flows for lenders.
6For objective questions, test each option against the user's decision and remove those that do not fit.
7Check the answer matches the exact wording, for example 'most likely' or 'primary users'.

Quickest way: Match the user to the key worry

When to use it: Use this for multiple choice and multiple response questions where time is short.

Investors: return and risk, so profit, dividends and growth.
Lenders: repayment, so cash flow, gearing and interest cover.
Employees: job security and pay, so profit and stability.
Suppliers: getting paid, so liquidity and payables position.
Customers: continuity of supply, so long-term survival.
Government: tax and compliance, so profit and tax figures.
Pick the option that matches the user's worry and drop the rest.

Common mistakes in Users of Financial Statements and Their Needs

Treating managers as external users of published accounts.
Managers read the accounts, so students assume they are the target audience.
Fix: Managers are internal users. They use management accounts and can ask for any information they need.
Saying all users need the same information.
Students think of financial statements as one document with one purpose.
Fix: Always state each user's decision first. Lenders focus on repayment, investors on return and growth.
Listing users without explaining their needs.
Students memorise a list of names and stop there.
Fix: Use the chain user → decision → information. One clear sentence per user earns the mark.
Forgetting that investors, lenders and other creditors are the primary users.
Students treat employees, government and the public as equally important.
Fix: Remember the Conceptual Framework targets those who provide capital. Other users may benefit but are not the main focus.
Confusing the needs of suppliers and lenders.
Both are creditors who want repayment.
Fix: Lenders look at long-term repayment and gearing. Suppliers look at short-term liquidity and ability to pay invoices on time.

Worked examples

Example 1

A bank is considering a five-year loan to a company. Which information in the financial statements is the bank most likely to focus on? Choose one: (A) The directors' pay rise (B) Cash flow and gearing (C) The number of staff trained (D) The colour of the logo.

Show the solution

The user is a lender, an external primary user.
The lender's decision is whether to lend and whether it will be repaid with interest.
Repayment depends on cash generation and the level of existing debt.
Option B matches. The others are irrelevant or minor.

Answer: B: Cash flow and gearing.

Example 2

Explain what employees and suppliers want to learn from a company's financial statements.

Show the solution

Employees: their decision is whether to stay or seek other work, and whether to negotiate pay.
They want to see profit and stability, to judge job security, pay rises, bonuses and pensions.
Suppliers: their decision is whether to supply goods on credit and on what terms.
They want to see liquidity and the level of payables, to judge whether they will be paid on time.
Both groups are interested in survival, but employees look at long-term stability while suppliers look at short-term ability to pay.

Answer: Employees want evidence of profitability and stability to judge job security and rewards. Suppliers want evidence of liquidity to judge whether credit will be repaid on time.

Exam tips

In objective tests, find the user first, then the decision. The correct option usually matches that decision directly.
For multiple response questions, select exactly the stated number and check each choice against the user named.
Remember internal users do not rely on published accounts. This is a common trap.
In written-style answers, give one need per user and name the relevant statement or ratio.

Practice questions from Importance and purpose of analysis of financial statements

Users of Financial Statements and Their Needs in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Users of Financial Statements and Their Needs: frequently asked questions

Who are the main users of financial statements in ACCA FA?

Existing and potential investors, lenders and other creditors are the primary users under the Conceptual Framework. Others, such as employees, suppliers, customers, government and the public, also use the statements. Learn the main need of each group.

What is the difference between internal and external users?

Internal users, such as managers and directors, work inside the entity and can obtain detailed management information. External users, such as investors and lenders, rely mainly on published financial statements.

What do lenders want from financial statements?

Lenders want to know if the entity can pay interest and repay the loan when due. They look at cash flow, gearing, profit and the assets available as security.

Can financial statements meet every user's needs?

No. They show mainly past results, use estimates and lack much non-financial information. They aim to meet the common needs of the primary users, and analysis helps fill gaps.