Who uses accounting information and what does each user need from it?
Identify the users of accounting information and explain the decisions each needs to make.
Identify internal and external users of a sole trader's accounting information and match each user group to the decisions and reports they rely on.
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What this dot point is asking
Accounting is often called the language of business because it communicates financial facts to the people who must make decisions. Unit 1 of the TASC course asks you to recognise who those people are and what each one needs. The clearest way to organise them is to split users into internal and external groups.
Internal users
Internal users are inside the business and have full access to detailed records.
- The owner (for a sole trader, often also the manager) wants to know whether the business is profitable, whether it can pay its debts, and whether it is worth continuing or expanding.
- Managers and employees responsible for parts of the business use budgets, cost reports and cash forecasts to plan, set targets and control spending.
Internal users can ask for any report at any time, including forward-looking ones such as cash budgets, because they are not limited to published statements.
External users
External users are outside the business and usually see only summary reports.
- Lenders (banks) want to know whether the business can repay a loan and meet interest, so they study liquidity and stability.
- Suppliers (creditors) selling on credit want to know whether they will be paid, so they look at short-term liquidity.
- The Australian Taxation Office needs reliable figures to assess income tax and GST obligations.
- Prospective purchasers or investors want to judge whether the business is a sound buy.
- Employees may want assurance that the business is stable and can keep paying wages.
Matching information to the decision
The key skill is linking a user to the decision and then to the report that answers it. A lender deciding on an overdraft cares about the current ratio and cash budget, not the fine detail of every sales invoice. The owner deciding whether to hire staff cares about profitability and the cash forecast. Reporting the right information to the right user is what makes accounting useful rather than just a pile of numbers.
Worked example
The purpose of accounting and decision usefulness
Behind the list of users sits a single idea: accounting exists to provide information that is useful for economic decisions. This is the decision-usefulness purpose. Information is only worth preparing if it helps someone decide something - whether to lend, to buy, to expand, to extend credit, or to keep working for the business. This purpose is why the qualitative characteristics (relevance and faithful representation) matter, and why the same records are reshaped into different reports for different users. When you justify a report for a user, anchor it to the decision that user must make.
Stewardship and accountability
A second purpose is stewardship: accounting holds those who control resources accountable for how they have used them. For a sole trader the owner is both the steward and the main user, but external parties such as the ATO still rely on the records to confirm obligations have been met. Reliable record-keeping therefore serves accountability as well as decision-making, which is one reason accuracy and honesty (covered under principles and ethics) are not optional extras but central to the purpose of accounting.
Conflicting information needs
Different users sometimes want different things from the same business, and their needs can pull in opposite directions. An owner may want to minimise reported profit to reduce tax, while a lender wants evidence of strong, stable profit before approving a loan. This is exactly why faithful, neutral reporting matters: the figures must represent what really happened rather than being shaped to suit one user. Recognising these tensions helps you explain why professional standards and ethics exist and why a single, honest set of records is prepared rather than a different version for each audience.
Why this matters
Exam questions often describe a user and ask which report or ratio is most relevant, or ask you to justify why a particular stakeholder wants particular information. Being able to connect user, decision and report quickly is worth easy marks and underpins the whole decision-making strand later in the course.
Exam-style practice questions
Practice questions written in the style of TASC exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
TCE 20226 marksA sole trader who owns a cafe is applying to a bank for a loan to fit out a second location. Identify three users of the cafe's accounting information, state the main decision each must make, and name one report or ratio each would rely on.Show worked answer →
Match each user to a decision and to a relevant report or ratio.
Owner: decides whether the expansion is affordable and worthwhile; relies on the income statement (profitability) and a cash budget (can it fund the fit-out).
Bank (lender): decides whether to approve the loan and on what terms; relies on the balance sheet and stability or liquidity ratios such as debt to equity and the current ratio, plus the cash budget to check repayments can be met.
Supplier (creditor): decides whether to continue offering credit; relies on short-term liquidity, mainly the current and quick ratios.
Other valid users (ATO, employees, prospective buyer) earn marks with an appropriate decision and report. Markers reward three distinct users, a correct decision for each, and a report or ratio genuinely matched to that decision.
TCE 20234 marksDistinguish between internal and external users of accounting information, and explain why the reports prepared for each group differ in detail and timing.Show worked answer →
A full 4 mark answer defines both groups and explains the difference in reporting.
Internal users (the owner, managers and employees) work inside the business and can access detailed records at any time, including forward-looking reports such as cash budgets and cost reports, because they use the information to plan and control operations day to day.
External users (lenders, suppliers, the ATO, prospective buyers and employees) sit outside the business and generally receive only summarised, historical reports at set intervals, such as the annual financial statements, partly for practical reasons and partly because they do not have a right to confidential internal detail. The same underlying records serve both, but internal reporting is more detailed, more frequent and more future-focused. Markers reward clear definitions of each group and the detail, frequency and time-focus differences.