Why Accounting Information is Required

Since the primary function of accounting is to provide information for various parties or users for making relevant decision in relation to the company and here is the list of the users and also why they want the accounting information –

1. The owners use them to see if they are getting a satisfactory return on their investment or equity, and to assess the financial health of their company

2. The directors/managers use them for making both internal and external comparisons in their attempts to evaluate the performance. They may compare the financial analysis of their company with the other companies in the industry in order to ascertain the company’s relative strengths and weaknesses as compared to other companies in the industry.

3. The creditors want to know if they are likely to receive their money back which they have given to the company and hence they look particularly at liquidity, which is the ability of the company to pay its debts at right time.

4. Employee needs it in order to see if they will be able to get their promotions as well as increase in their salaries and also higher the goodwill of the company better it is for the employees of the company.

5. The prospective investors use accounting information to assess whether or not to invest their money in the company.

6. The government and regulatory agencies such as Registrar of companies, Custom departments IRDA, RBI, etc. require information for the payment of various taxes such as Value Added Tax (VAT), Income Tax (IT), and also to satisfy the legal obligations imposed by the Companies Act 1956 and SEBI from time-to time.

Hence from the above one can see that various users need accounting information according to their respective objectives and not for any single objective.