Who uses Financial Reports?

The purpose of financial reports is to provide the users of those reports with certain information.  For the standard setter the questions then are:

• who are those users that financial reporting standards (FRS) should be designed to assist, and

• what is the information that FRS should require being included?

This post will focus on the first of these questions, who are the users that standard setters should be designing FRS for, and the next post will consider the second question, what information needs to be in financial reports.

There are many different groups of users.  These range across all stakeholder types from government departments, regulators, pressure groups, investors, suppliers (of labour, services, goods or finance), customers, competitors etc.  All of these will have some concerns in common, but many will have a particular interest that may not be shared across all user groups.

It is highly unlikely that standards setters will be able to satisfy all the concerns of all user groups. 

Some groups (government, regulators) will have their own power to require provision of additional information over and above the information required by financial reporting standards.  Standard setters should therefore not be focussed on providing that information to these groups.

Similarly standard setters should not be concerned with the campaigns of pressure groups, no matter what their concerns.  If society deems these concerns sufficiently important, government will legislate the necessary disclosures.

Of the remaining stakeholders those with the broadest concerns are shareholders not involved in the management of the entity.  They want information about the absolute and relative performance of the entity, and its future prospects.  Management have direct access to information without the need for standards to require publication of that information, and investors who are not shareholders do not have the immediacy for information as they can always decide not to invest if there is a shortage of information.

Most of the other stakeholders have narrower concerns relating to the solvency of the entity in the short to medium concern.  And finally entities should only be required to publish information to benefit their competitors if required by government, for example in quasi monopolistic situations.

Shareholders not involved in management are therefore the group that FRS should be designed to assist.