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           Fundamentally, financial statements are
created to evaluate company’s financial performance throughout the year and to
compare past and current performance. There are four things classified as
financial statements which are Income Statement, Balance Sheet, Statement of
Cash Flows and Statement of Changes in Equity. There are two types of users of
financial statements which are internal users and external users. Examples of
internal users such as managers and employees while for external users are
creditors, customers, tax authorities and investors. According to The
International Accounting Standards Board, the three primary users are lenders, investors and other creditors.


lenders are those who lend funds to
companies. Owner’s property only is not enough to fund business operations,
thus money from lenders will suffice it. Debenture holders are eager to know
how much interests they will earn every year because some debenture interests
are determined based on profit. In most cases, small companies usually will
borrow from bank as they are not selling shares publicly. Most banks will only
give loans to companies with good business prospects because bank will be in a
big loss if there are so many bad debts. Therefore, bank needs to certify company’s
state of liquidity by observing the financial statements especially the cash flows
statement. To sum up, lenders are mostly interested in the company’s solvency
which is the ability of company to pay back the loans.

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from that, the main users are investors either
the potential or the existing ones. For potential investors, they are keen to
know about the profitability of the business as no investors want to invest in
a loss-making business. Shareholders who are the existing investors, their
purposes are to check their risks of investment and decide whether they will
sell or keep their shares. Moreover, to confirm how much dividends that will be
granted to them. If the performance of the company is getting worse under the
management of the current directors, shareholders have rights to appoint new
directors. As the owners of the company, shareholders are very concerned to
retain the company’s good performance and increase the company’s wealth.


          In addition, the main users are creditors which in business are usually trade creditors. Their motives are reasonably
as same as the lenders’ which are to observe the company’s solvency and access
the liquidity. The difference between the interest of creditors and lenders is
creditors are more interested to know about the short-term liquidity while long-term
for creditors. In fact, companies usually set a contract or agreement with suppliers
or creditors. Before the suppliers agree to set an agreement, their credit
manager will firstly check on the company’s liquidity. Creditors will also
appreciate if the company have a good performance because this indicates that
their relationship will last a long time.


        There are few reasons for other users such
as managers, directors, employees,
government and customers are not included as the primary users by IASB. For
managers and directors, they are more likely to use management accounts than
financial statements as references to improve company’s performance. Anywise,
they can access financial statements anytime. Employees are only eager to know their
status if they will remain in the company for a long time. Because of not many
employees are paid using performance-related pay method, then to access the
company’s profitability continuously is not their main motive. The main purpose
of governing bodies is to review the company’s profit to calculate taxes. While
it is very uncommon for customers to observe financial statements regularly unless
if they really concerned about the company’s continuity.


           In conclusion,
financial statements should not be the only reference to conclude the company’s
whole performance as the non-financial issues are not addressed and only based
on historical costs. But overall, they are very useful in determining profitability,
solvency and liquidity of the company apart from helping users in making their

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