Financial Accounting · The context and purpose of financial statements for external reporting

Users of Financial Statements and Their Information Needs

Updated 11 October 2026 · Fact-checked

Users of financial statements are the people who rely on a company's accounts to make decisions. The main external users are investors, lenders, employees, customers, suppliers, government and the public. To answer exam questions, match each user to the decision they make and the information that helps them.

Understand Users of Financial Statements and Their Information Needs

Financial statements are prepared for people outside the business who cannot demand information directly. A company's managers can ask for any report they like. Outsiders cannot. So the accounts must give them a general picture of the entity's position and performance.

The IASB's Conceptual Framework names the primary users of general purpose financial reports: existing and potential investors, lenders and other creditors. They provide resources to the entity. They decide whether to buy, sell or hold equity or debt instruments, and whether to provide or settle loans and other credit. Trade suppliers who are owed money are other creditors, so they are covered by this group. Other parties, such as employees, customers, government and the public, may find the reports useful, but the reports are not mainly aimed at them.

In the Applied Knowledge exam you also need the wider list of user groups. Each one has a different question in mind:

Investors (shareholders): Is the business profitable? Is it safe to invest? Can it pay dividends and grow?
Lenders (banks, bondholders): Can the entity pay interest and repay the loan? What assets back the debt?
Suppliers and other trade payables (other creditors): Will I be paid on time? Is it safe to keep selling on credit?
Employees: Is my job secure? Can the employer pay wages, pensions and bonuses?
Customers: Will the business continue to supply me and honour warranties?
Government and tax authorities: How much tax is due? Does the entity follow regulations? What does it contribute to the economy?
The public: Does the entity affect the local community, for example through jobs, environmental impact or local spending?

The key distinction is external versus internal users. Internal users, such as managers and directors, can get detailed management accounts tailored to their needs. External users rely mainly on published financial statements. Management accounts are not governed by accounting standards and are not published. Financial statements are prepared under IFRS Accounting Standards and are meant for outsiders.

No single set of accounts can meet every need perfectly. That is why they focus on common needs: financial position, performance, and cash flows. Users can then make their own judgements.

Key formulas to remember

Primary users of general purpose financial reports: Primary users = existing and potential investors + lenders + other creditors; These are the users the Conceptual Framework says reports are aimed at, because they provide resources to the entity.
User matching rule: User → decision → information needed; Use this three-part link to answer any question: who the user is, what they must decide, and which part of the accounts helps.
Internal versus external: Internal = managers/directors (management accounts); External = everyone else (published financial statements); Management accounts are for internal decisions and are not governed by IFRS.

How to solve Users of Financial Statements and Their Information Needs questions

Use this method for any question on who uses accounts and what they need.

1Read the question and identify exactly what is asked: name a user, state a need, match a user to information, or compare internal and external.
2Decide whether the user is internal (managers, directors) or external (investors, lenders, suppliers, employees, customers, government, public).
3State the decision this user must make, such as lend, invest, supply on credit, stay in a job or assess tax.
4Link the decision to the information: profit and dividends for investors, liquidity and security for lenders, ability to pay for suppliers, stability for employees, and so on.
5Check the number of answers requested. In a multiple response question, select exactly that number.
6Eliminate options that describe the wrong user or an information need that belongs to another group.
7Confirm your choice against the key idea: external users rely on published financial statements; internal users use management accounts.

Quickest way: Match the user to the one word they care about

When to use it: Use this in Section A objective test questions when time is short and the options are similar.

Attach one keyword to each user: investors = return, lenders = repayment, suppliers = payment, employees = security, customers = continuity, government = tax, public = community.
Read the question stem and find the keyword it implies.
Pick the user or need that fits the keyword.
If two options seem right, choose the one that is more specific to the user's decision, for example interest cover for lenders rather than profit generally.
Check for a trap: management accounts and internal users are not the target of published financial statements.

Common mistakes in Users of Financial Statements and Their Information Needs

Treating managers as external users of published financial statements.
Managers do read the accounts, so students assume they are users in the same sense as outsiders.
Fix: Remember that managers are internal users who can obtain detailed management accounts. Published financial statements are aimed at external users.
Saying all users need the same information.
Students learn one list of statements and forget the different decisions behind them.
Fix: Always link each user to a decision. Investors focus on profit and dividends; lenders focus on ability to repay and security.
Naming government as the primary user of financial statements.
Tax and regulation feel important, so students rank government first.
Fix: The Conceptual Framework says the primary users are investors, lenders and other creditors. Government, employees, customers and the public are other users.
Confusing lenders with suppliers.
Both are owed money, so the two groups look alike.
Fix: Lenders provide finance, often long term, and look at interest cover, gearing and security. Suppliers provide goods on credit and focus on short-term ability to pay. Trade suppliers are other creditors, so both groups are covered by the primary users, but their needs differ. Employees, customers, government and the public are other users.
Selecting the wrong number of options in a multiple response question.
Students rush and tick every option that seems partly true.
Fix: Check the stated number of answers. Choose exactly that many and discard options that match a different user.
Listing users without giving their needs.
Students memorise names but not the reasons behind them.
Fix: Write each user with a short purpose, such as employees: assess job security and ability to pay wages.

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? A) The directors' bonus scheme B) The company's ability to pay interest and repay the loan C) The company's marketing plan D) The detailed cost of each product line

Show the solution

Identify the user: a lender, which is an external user and one of the primary users.
State the lender's decision: whether to lend and whether the loan will be repaid with interest.
Link to information: profit, cash flows, liquidity, gearing and assets available as security. Lenders also look at any loan covenants and security offered.
Check the options. A concerns remuneration and is not the lender's main concern. C and D relate to internal management decisions, not the lender's decision to lend.
Option B matches the lender's decision.

Answer: B) The company's ability to pay interest and repay the loan.

Example 2

Match each user to the information need that BEST fits it: (1) Employees, (2) Suppliers, (3) Investors. Needs: (X) Whether the company will pay its trade payables on time, (Y) Profitability and likely dividends, (Z) Stability and ability to pay wages and pensions.

Show the solution

Employees decide whether to remain in a job and whether pay and pensions are safe. This fits Z.
Suppliers decide whether to sell on credit and are concerned about being paid on time. This fits X.
Investors decide whether to buy, hold or sell shares. They want profit, growth and dividends. This fits Y.
Check that each need is used once and no need is shared.

Answer: Employees: Z; Suppliers: X; Investors: Y.

Exam tips

Always tie the user to a decision. A one-line link such as 'lenders need to assess repayment ability' is enough for objective tests.
Remember the primary users: investors, lenders and other creditors. Questions often test this precise wording.
Watch for the internal versus external trap. Management accounts, budgets and product costings are internal; published financial statements are external.
In multiple response questions, count the required answers before selecting and remove options that belong to a different user group.
Use keyword matching under time pressure: return, repayment, payment, security, tax and community.

Practice questions from The context and purpose of financial statements for external reporting

Users of Financial Statements and Their Information 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 Information Needs: frequently asked questions

Who are the main external users of financial statements?

The main external users are investors, lenders, suppliers and other trade payables, employees, customers, government and tax authorities, and the public. Investors, lenders and other creditors are the primary users under the Conceptual Framework.

What is the difference between internal and external users of financial information?

Internal users are managers and directors who run the business. They can obtain detailed management accounts. External users are outside the entity and rely mainly on published financial statements prepared under IFRS Accounting Standards.

Why are investors treated as the main users of financial statements?

Investors provide the capital that lets the company operate, and they bear the risk. Along with lenders and other creditors, they must decide whether to provide or keep providing resources, so reports are aimed mainly at them.

What do employees need from financial statements?

Employees want to assess the entity's stability and profitability. This helps them judge job security and whether it can pay wages, pensions and other benefits.

Are management accounts the same as financial statements?

No. Management accounts are prepared for internal decisions, can take any format and are not published. Financial statements follow IFRS Accounting Standards and are prepared for external users.