External users

Definition

External users are individuals or entities outside of an organization who use its financial information. They typically include investors, creditors, regulators, and other stakeholders interested in the company's financial health and performance.

5 Must Know Facts For Your Next Test

1. External users rely on financial accounting reports rather than managerial accounting reports.
2. Financial statements such as the income statement, balance sheet, and cash flow statement are primary tools for external users.
3. External users need accurate financial data to make informed decisions about investing or lending to a company.
4. Regulatory bodies like the SEC require companies to disclose certain financial information for the benefit of external users.
5. Unlike internal users, external users do not have access to detailed internal records and proprietary data.

Review Questions

• Who are considered external users in an organization?
• Why do external users rely on financial accounting reports instead of managerial accounting reports?
• What types of financial statements are most useful for external users?

Related terms

Internal Users:

Employees or managers within an organization who use internal reports for decision-making.

Financial Accounting:

The branch of accounting focused on creating financial statements for external reporting.

Stakeholders:

Individuals or groups that have an interest in the performance and activities of a business.