Introduction The primary users of financial statements are defined


The primary users of financial statements are defined by the IASB,
(2010) as present and potential investors, lenders and other creditors, each of
whom (including their advisors) make decisions about providing resources to an
entity.  The IASB acknowledge that other
groups such as employees, regulators and the general public may also consider financial
statements to be useful, but the reports are not primarily directed to these
other groups.

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Purpose of Financial
Statements for Primary Users

Decisions by existing and potential investors about buying, selling,
or holding shares depend on their expectations of dividends and share price
growth. Similarly, decisions by existing and potential lenders and other
creditors about providing or settling loans or other forms of credit depend on
the principal and interest payments or other expected returns.


According to Kothari, (2010) primary user expectations about returns,
depend on their assessment of future net cash inflows for an entity. Consequently,
these groups need information to help them assess the prospects for future net
cash inflows and to attribute a value to the entity. To make this assessment,
the primary users use financial statements to obtain information about the
entity’s resources, claims against the entity and entity stewardship. Such
information will allow these capital providers to make decisions as to how to allocate
their resources to a particular entity and how to protect or enhance their


Primary Users: Financial
Statement Assessment Factors

Primary users will use financial statements to assess a company’s
financial stability and prospects. They will want to understand the valuation
of business net assets as a going concern and also in a scenario where trading
ceased. They will also seek assurance on business solvency i.e. the company’s ability
to pay debts as they fall due. The effectiveness of the management in their
stewardship of the company’s resources will be considered relative to similar
companies. Lenders and other creditors will want to understand how secure is
their debt relative to other repayment claims and their ranking.  Investors will consider the amount, timing
and certainty of future net cash flows, including an assessment of business
resilience and risk in order to establish a valuation of the business. The
IASB, (2010) broadened its discussion of primary user financial information to
include changes to and claims upon economic resources.


Other User Groups and What
They Need from Financial Statements

Management, Employees & Unions will want to understand whether
the company is sustainable and will it be able to pay wages, salaries and provide
employee benefits. Information on pay structures will be of interest, as will
an assessment as to whether the company will be able to provide future career


Government/Regulators will want to understand whether there is there
any evidence of non-compliance with legal / industry regulatory requirements.

The statements will also provide a useful cross-reference to confirm that the
correct amount of tax is being computed


Customers will want to confirm that the company will be able to
sustain its supplies. Competitors will seek out useful information which might
help improve their competitive position. Members of the public may want to use
the statement information to confirm that the company is acting in a
responsible and ethical manner.


Why “Other User
Groups” Weren’t Included Within the IASB Primary User Group

The IASB considered that without a defined group of primary users,
the Conceptual Framework within which accounting standards are developed, would
risk becoming unduly abstract or vague. The primary user group were considered
to have the most critical and immediate need for the information in financial
reports. They probably wouldn’t be able to require the entity to provide the
information to them directly. The IASB considered that the objective of
financial reporting is to provide financial information about the reporting
entity that is useful to primary users when making decisions in relation to the
provision of capital. Information that meets the needs of the specified primary
users is likely to meet most of the needs of other users