Accounting information is crucially important for decision making of both external and internal users of such information. Internal users are mainly managers who rely on accounting information to make informed decisions about the company in question. On the other hand, external users of accounting information are those who have a financial interest and are not involved in the company’s operations. External users are divided into users with a direct financial interest and users with an indirect financial interest. Those with direct financial interest include owners, creditors, and investors, while those with an indirect financial interest consist of clients, employees, and the government among others. It should be noted that all these users of financial statements rely solely on accounting information presented in financial reports to make informed decisions for their own benefit. However, companies publishing financial reports ought to take into consideration ethical and legal implications of the kind of financial information released for the users. In other words, they should not misinform these users for the company`s own benefit. Through the analysis of the case study of Aberdeen Asset Management group, the current report explains how financial information meets the needs of five different non-management external users.
Aberdeen Asset Management is a global investment management group that operates and regulates assets for institutions and private investors from offices across the world. The company is headquartered in Aberdeen, Scotland, and it is one of the top multinational companies that constitute the FTSE 250 index being listed on the London Stock Exchange (Aberdeen 2016). The company was founded in 1983 to be listed on the London Stock Exchange in 1991. Since then, the company has rapidly grown to take up assets all across Europe and Asia. Its tremendous growth has seen the company acquire some other companies including Murray Johnstone and Edinburg Fund Managers, Glasgow Investment Managers, and Goodman Property Investors. Notably, after buying Scottish Windows Investment Partnership in 2013, the company became the second largest listed asset management company not only in the United Kingdom but also across Europe (Aberdeen 2016). The company continues to experience growth and it continues to acquire more companies for strategic reasons that will see it rise to its success in the near future.
By concentrating only on asset management without engaging in other financial activities, the company manages assets only for the third parties and tries to eliminate conflicts of interest. Therefore, the company’s investment processes are as modest and vibrant as possible and, thus, their operations are also simple and profitable for the investors. Another important feature of the company’s operations is linked to the company`s ability to emphasize the long-term view of its investment operations (Aberdeen 2016). It should be noted that Aberdeen Asset Management company’s business chiefly consists of active management of financial assets. Thus, the company heavily relies on first-hand study findings to make informed investment decisions. Taking advantage of its abilities across a wide array of asset classes, Aberdeen Asset Management group provides investment solutions with professionally tailored investment outcomes in order to meet the needs of different external clients.
Non-Management External Users of Financial Information
Creditors are potential lenders of funds such as banks or other financial institutions whose interest in a company’s financial information would be to ascertain the credit worthiness of a company before they lend them money. The thing is that the terms of obtaining credit from any financial institution are set by the same creditors/lenders in accordance with the assessment of the client’s financial potency. Creditors may also include suppliers who may be needed to supply certain services or goods to enhance the operations of the company in question. In such a case, the company seeking supplies on credit or seeking to borrow funds will have to provide their financial statements truly reflecting their financial health without any fraud to be able to receive the funds or services/goods (Maynard 2013). For instance, if Aberdeen Asset Management wanted to expand its operations but it was falling short of funds to implement its plan, it may seek financial help from a bank.
However, they will need to provide their financial statements and reports as and when required by the lender to receive the funds. Accuracy of financial reports is vital to get approval from the lender who determines the financial capabilities of Aberdeen Asset Management. In other words, lenders/creditors look for the credit history of the borrower, capacity to comfortably finance the loan, collateral, capital, and conditions in terms of how the borrower wants to repay the loan extended. This credit risk assessment involves several sources of information including a statement of financial position of the company, income statements, a statement of cash flow, and a statement of change in equity among other necessary documents (Kayode 2015). For all these documents, quality is the key factor. If the lender finds out some inaccuracies or false data, the credit will be denied. Thus, for creditors, financial information is a determinant which creates a mental picture of the company as far as its financial stability is concerned.
Investors are those individuals or companies who commit their money or capital into a financial scheme while expecting financial returns. There is a wide variety of investment vehicles such as stocks, mutual funds, futures, options, commodities, bonds, foreign exchange, and real estate among others. Like any other non-management external users of financial information of a company, investors are always interested in the financial health of a company, because their investment decision solely depends on the financial information provided which gives investors an opportunity to make informed decisions before putting their money in any investment plan (Kayode 2015). Notably, the accounting information makes it easier for investors to predict trends and performance of an organization, which is a key indicator that their money will be put into good use and therefore guaranteed returns on investment.
Therefore, investors are mainly interested in the accounting information of a company to scrutinize the viability and performance of a company. For instance, Aberdeen Asset Management which is involved in active management of financial assets for both institutions and individual investors is responsible for making available all the necessary financial statements and reports to investors. Critical financial information in such reports will help them make informed decisions that will ensure that their money will increase either annually or within any specified period (Maynard 2013). Therefore, investors primarily rely on information from the balance sheet and income statements and reports that truly reflect the financial picture of the company. As such, companies are always advised to ensure that they observe high ethical standards in their financial reporting not to mislead their potential investors, which is otherwise tantamount to fraud and according to the U.K. commercial laws, this is a criminal offense punishable by law.
Customers are individuals or businesses who purchase or consume services or goods that have been produced by an organization. Customers are the main reason for the existence of organizations, because they create demand for goods and/or services offered by an organization. That is, businesses will cease to exist if there are no customers. As such, when a long-term relationship exists between an organization and its customers, the customers become increasingly interested in the organization’s future plans to know whether the company will continue meeting their demands or the company will vanish after a few years in business given the fact that failure in business is possible at any point in time. In fact, the need is heightened where customers in a given area depend on the organization for critical services and/or goods (Kayode 2015). As such, they become more interested in the company’s financial statements and reports for the sake of not only understanding but also gauging the future plans of the company. For example, Aberdeen Asset Management has many clients across the globe who depend on the company`s services such that any unexpected deviation of the group from its development plan could present a risk for its customers. Just like investors, customers too are always on high alert to notice any kind of anomaly in running an organization. Therefore, to trust an organization, they have to constantly seek for critical and up-to-date information about an organization and these information can only be found from financial statements and reports.
Consequently, in order to gain the customers’ trust, the company has to develop a good rapport with the clients for the sake of not only attracting new customers but also retaining existing ones who are equally important (Kayode 2015). Notably, the company has to keep in mind that misinforming customers has detrimental ramifications which should be avoided. Therefore, companies should strive to publish financial data that correctly informs their customers to create and maintain a good nexus with the customers in the long-run. Incomplete financial reports can become the reason for customers` dissatisfaction and can affect organizational reputation.
However, while incomplete financial reports may lead to customers` dissatisfaction, incorrect or evaded data obtained by governmental bodies such as tax authorities will probably cause serious problems for the company. The government needs accurate financial reports for tax and regulatory purposes. Generally, the government and its various bodies are chiefly interested in knowing how much money the company makes in a bid to calculate the amount of tax due (Maynard 2013). Obviously, a lot of companies have been put on the limelight because of attempts of tax evasion or misinformation about their annual earnings to avoid paying “too much tax”. Apparently, nothing of this sort goes unpunished because such tactics only lead to thorough scrutiny, which may have dire consequences as far as the future of a company is concerned.
Therefore, tax authorities have to keep on monitoring the financial statements and reports of every organization in order to ensure that the taxpayers pay their taxes not only as and when it is due but also in the amounts that reflect true financial earnings of an organization. On the other hand, regulatory government authorities check the statements to ensure that the organization discloses accounting information according to applicable rules and regulations. This is done in order to protect the interests of stakeholders such as investors, owners, and creditors among others (Maynard 2013). Ideally, the government is represented by several independent bodies who work closely with each other for protection of public interests. Otherwise, if organizations were left to run their operations freely, only a few would publish their books of account while others would take advantage of this freedom to misinform the public and stakeholders for their own gratification.
- General Public
This group of non-management external users of accounting information of a given organization may include researchers, analysts, and students among others. While this group of users may not have a directly vested interest in the business of an organization, they need this accounting information for various reasons. For instance, the public may be interested in knowing about the operations of an organization, its objectives, its impact on the public daily routine, and its responsibility, especially when an organization is located in a residential area. It should be noted that the business has a social responsibility to take care of the general public, although the latter may not have direct interests in the business (Kayode 2015). For instance, Aberdeen Asset Management is committed to invest in human resources through recruiting and retaining people with varied talents who put the company’s clients and customers at the heart of the business.
This explains the company`s involvement in the Women in Finance Chatter with the purpose to reduce a gender-pay gap as well as increase gender diversity. The company has several branches across the world and in its pursuit of promoting long-term careers, it endeavors to recruit and retain employees from the areas where it operates. Besides, its aim of 42-45 percent female employees by 2022 is still on course, as it strives to increase gender diversity especially in its senior management echelons (Aberdeen 2016). From the forgoing, it is apparent that the company is interested not only in making abnormal profits but also in meeting the needs of those people who may not have a direct interest in the company but still stand a chance to benefit in one way or another. This information is always published in financial statements and reports to allow the public know that the organization is always concerned about their welfare despite its core business goals.
Conclusion and Recommendations
The preceding discussion has clearly shown that external users of accounting information need this information for varied reasons not always connected with the financial interest. These non-management external users as identified include the government, general public, customers, creditors, and investors. Through the analysis of the Aberdeen Asset Management case, it has been identified that most of these users – especially creditors, investors, and customers – rely on accounting information to make informed decisions in regards to the credit worthiness of a potential borrower, the viability of investing money into the company, and the prospects, and benefits of partnership with the organization in the long-term respectively. With the help of a few examples from the company of interest, Aberdeen Asset Management, the paper has unraveled the importance of publishing accounting information in accordance with international and local financial rules and regulations of reporting. Even though different stakeholders are interested in various aspects of financial reporting and take advantage of different types of accounting documents, all of them want the financial information to meet the high standards of accuracy, preciseness, and trust-worthiness. Moreover, the external users of accounting information expect not only the high quality of data but also its completeness. Providing incomplete or inaccurate financial reports may put at risk the company`s reputation and undermine its sustainable development.
Thus, there need to be consistency and accuracy in accounting reporting. For this to be attained, apart from introducing laws and regulations on financial reporting, the government had better come up with an online one-stop shop portal for reporting. Such portal would save the time of tax payers and tax authorities and will ensure that organizations provide only relevant, credible, and reliable information for all types of users, especially the external ones. It would be convenient to include several obligatory fields to be filled out by companies providing financial information. If the fields are not completed, the report cannot be submitted. Such strict requirements will oblige the financial information providers to adhere to the government regulations and meet the external users` requirements. Since different users need accounting information for varied reasons, it would be prudent for companies to ensure that they include all necessary data at once. Besides, companies should make it a habit to publish their financial statements annually and with consistency. For this reason, the web portal could provide email or automatic phone notifications to registered users to remind them of the expected date of financial reporting.
Aberdeen 2016. About us. [Online]. Available from: http://aboutus.aberdeen-asset.com/en/aboutus/responsible-business/investing-in-our-people [28 January 2017].
Kayode, MK 2015. The users of accounting information and their needs. An introduction to accounting and its branches. 1st ed. Munich: GRIN Verlag.
Maynard, J 2013. Financial accounting, reporting, and analysis. 1st ed. Oxford: OUP Oxford.