Financial Accounting · Key principles and concepts of accounting

Purpose and Users of Financial Statements for ACCA FA

Updated 11 October 2026 · Fact-checked

Financial statements give information about a business's financial position, performance and cash flows to people who cannot demand it directly. Users include investors, lenders, employees, suppliers, customers, tax authorities and the public. To answer a question, identify the user, state what decision they make, then name the information they need.

Understand Purpose and Users of Financial Statements

A business holds money, owns assets and owes debts. Many people outside the business need to know how it is doing. Most of them cannot walk in and ask for the books. Financial statements solve this. They are a standard set of reports the business prepares and shares.

The main purpose is to give useful information about the entity's financial position, financial performance and cash flows. Users then make decisions based on it. These decisions include whether to buy or sell shares, lend money, extend credit, stay in a job or assess tax.

The IASB Conceptual Framework calls the primary users existing and potential investors, lenders and other creditors. They provide resources to the entity and cannot demand tailored reports. General purpose financial statements aim to meet their common needs. Other groups, such as employees, customers, governments and the public, also use the statements, but the statements are not designed mainly for them.

Each user group asks a different question:

Investors: Is the business profitable? Will it pay dividends? Is my investment safe and growing?
Lenders: Can the business pay interest and repay the loan on time? Is there security?
Suppliers and other trade payables: Will I be paid on time?
Customers: Will the business keep trading and supply me in future?
Employees: Is my job secure? Can the business pay wages and pensions?
Tax authorities: Are profits and taxes reported correctly?
Government and regulators: How large is the business, and does it follow rules?
Public: Does the business support the local economy and community?

Now separate external users from internal users. External users, such as those above, rely on published financial statements. Internal users are managers and directors. They need detailed, frequent, forward-looking information (management accounts, budgets) and can ask for what they need. Financial statements follow IFRS and are mostly historic. Management information has no fixed format.

Key formulas to remember

Purpose of general purpose financial statements: Information on financial position + performance + cash flows → decisions by users; Learn this chain. Most exam answers are a version of it.
Primary users (Conceptual Framework): Existing and potential investors + lenders + other creditors; These are the users the statements are mainly aimed at. Other users find them useful but are not the main target.
Three questions for any user: Who is the user? → What decision do they make? → What information do they need?; Use this to structure any answer on user needs.
Internal vs external users: Internal = managers and directors; External = everyone outside who relies on published statements; Internal users can request tailored information. External users generally cannot.

How to solve Purpose and Users of Financial Statements questions

Use this method for any question on the purpose or users of financial statements, whether it is a multiple choice or a short written task.

1Read the question and underline the user group named (or described) in the scenario.
2Decide whether the user is internal or external, and whether they are a primary user (investor, lender, other creditor).
3Ask what decision this user must make, such as lend, invest, supply on credit, stay employed or assess tax.
4Match that decision to the information it needs: profitability, liquidity, solvency, cash flows, dividends or going concern.
5Check the question wording: 'purpose', 'main users' and 'information needs' have different answers.
6For a multiple response question, count how many options you must select and test each one against the user's decision.
7Eliminate options that describe management information (budgets, costs per unit) when the question asks about published financial statements.

Quickest way: User, decision, information

When to use it: Use in objective test questions that ask which user needs which information, or which statement about users is correct.

Name the user in one word, such as lender.
Link to the money question: lender means repayment, so liquidity and solvency.
Pick the option that matches that question. Investor means profit and dividends. Employee means stability and pay. Supplier means payment on time.
Reject any option that says one group needs nothing, or that managers rely only on published statements.

Common mistakes in Purpose and Users of Financial Statements

Treating managers as external users of published financial statements.
Managers also read the financial statements, so students assume they are like other users.
Fix: Managers are internal users. They have access to detailed management accounts and can ask for any information they need.
Giving the same generic need (profit) for every user.
Students memorise one answer and apply it everywhere.
Fix: Tailor it. Lenders focus on ability to repay, suppliers on short-term liquidity, employees on stability, investors on returns and growth.
Saying financial statements are mainly for management.
Confusion between financial accounting and management accounting.
Fix: Financial statements are general purpose reports mainly for investors, lenders and other creditors. Management accounting serves internal decision making.
Saying tax authorities set the format of financial statements.
Students mix up tax computation with financial reporting.
Fix: Tax authorities use the statements as a starting point, but they work from tax rules. Financial statements follow IFRS and company law.
Ignoring the word 'potential' when naming primary users.
Students think only current shareholders matter.
Fix: Primary users include existing and potential investors, lenders and other creditors, because potential providers also decide whether to commit resources.
Believing financial statements give users all the information they need.
Students overstate what the statements can do.
Fix: The statements cannot meet every user's needs. Users may also use other sources, such as market data and economic reports.

Worked examples

Example 1

A bank is considering a five-year loan to Delta Co. Which information in Delta Co's financial statements will be of most interest to the bank, and why?

Show the solution

Identify the user: the bank is a lender, so an external primary user.
Identify the decision: whether to lend, and on what terms.
Link to the question: can Delta Co pay interest and repay capital when due?
List the information: cash flows and liquidity for interest payments, existing borrowings and gearing for solvency, profit trends for future ability to pay, and assets that could act as security.

Answer: The bank needs information on Delta Co's cash flows, liquidity, level of existing debt and profitability. These show whether Delta Co can pay interest and repay the loan.

Example 2

Which TWO of the following statements about users of financial statements are correct? (A) Managers are external users who rely mainly on published statements. (B) Existing and potential investors are primary users. (C) Suppliers are interested in whether they will be paid on time. (D) Tax authorities decide the IFRS format of the statements.

Show the solution

Test A: managers are internal users with access to detailed management information. Incorrect.
Test B: the Conceptual Framework names existing and potential investors, lenders and other creditors as primary users. Correct.
Test C: suppliers extend credit, so they want to know that amounts owed to them will be paid. Correct.
Test D: IFRS format is set by the IASB and standards, not by tax authorities. Incorrect.

Answer: B and C are correct.

Exam tips

Always link the user to a decision. Marks go to the reason, not just the name of the user.
Know who counts as internal and external. Objective tests often use this as a trap.
In multiple response questions, select exactly the number asked. Test each option on its own.
Watch for wording such as 'primary users'. The answer is investors, lenders and other creditors.
Keep answers short and specific. One user, one need, one reason is usually enough.

Practice questions from Key principles and concepts of accounting

Purpose and Users of Financial Statements in other exams

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

Purpose and Users of Financial Statements: frequently asked questions

Who are the main users of financial statements?

The primary users are existing and potential investors, lenders and other creditors. Other users include employees, customers, suppliers, tax authorities, governments and the public. Each uses the statements for different decisions.

What is the difference between internal and external users?

Internal users are managers and directors, who can obtain detailed and frequent information. External users are outside the business, such as investors and lenders. They mostly rely on published financial statements.

What is the purpose of financial statements in ACCA FA?

The purpose is to give useful information about an entity's financial position, performance and cash flows. Users then use it to make economic decisions, such as whether to invest, lend or supply goods on credit.

Can financial statements meet the needs of every user?

No. They are general purpose reports aimed mainly at investors, lenders and other creditors. Other users may find them helpful but may need additional information from other sources.