Many experts agree that accounting is the lifeblood of any business because it provides crucial insight into data that highlights a company’s financial position. Analysis of financial information details the utilization of resources and facilitates planning for appropriate allocations in the future (Theriou, 2015). For any company to be successful and sustainable, the in-depth analysis of the underlying financial information is imperative. It avails otherwise unperceivable growth patterns and forecast information that the company owners, managers, and stakeholders can interpret and act on. Financial information is the measure of a business’ health and so important that most businesses make quarterly or even monthly assessments and adjust policies accordingly.
The accounting information is beneficial and necessary for different external and internal entities for any company, which include a company’s management and its employees. Financial information is essential for management to help them assess a company’s performance over a specified period, against competitors, performance indicators, and important benchmarks. Information about a company’s performance is useful in determining whether a company needs to maintain the same operational tactic or switch it. For instance, if the financial information shows that a company’s performance is in decline, it may prompt the management to effect changes, such as reallocating capital and human resources to ensure optimum efficiency. The data also provides information on profit or drawdown and on a company’s financial allocations, which may be essential in guiding the management on the organizational or investment changes necessary to improve profitability. ( Bhimani, & Langfield-Smith, 2007 ). Additionally, accounting information is key in management’s planning, budgeting, and decision-making. A financial review brings information into perspective, such as the amount of capital available for investment, how much funding goes into every department, and how to reduce wastage of funds in certain areas. Subsequently, this helps a company to maintain its competitiveness in the marketplace.
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Financial information is also important for employees because it enables them to evaluate a company’s financial health, growth, and profitability, all of which have the potential to affect their job security or future salary increments (Siddiqui, 2015). A company’s policy towards its employees is often dependent on its financial performance. For instance, if the available financial information depicts a decline in profits or sales, a company’s management would be inclined to cut operational costs including labor. Therefore, employees have to stay keen on this information as it is a key indicator of job security. In addition, when companies register an increase in profits, they appraise employees’ performance and contribution and reward them accordingly to motivate them to sustain the growth. This financial information may be pivotal for them in that it may provide insight into new expansion opportunities, which may be beneficial for employees seeking to change their current jobs or secure promotions. When a company grows financially, it often adds more personnel at all levels, which provides career development opportunities for its employees. Moreover, an increasing number of companies today, especially startups, offer shares and shares option schemes. It is important for employees to access and assess a company’s financial information to determine how much dividends their shares have accrued and identify potential opportunities to buy shares if the information is positive.
The financial information needs of these two parties differ in that the management requires to have it to make decisions in the best interest of the company, while employees need it to make decisions that facilitate their own interests. The management’s financial information needs lead to decisions that have an impact on every level of a company while those of the employees have an insignificant effect on a company’s operations.
References
Bhimani, A., & Langfield-Smith, K. (2007). Structure, formality and the importance of financial and non-financial information in strategy development and implementation. Management Accounting Research , 18 (1), 3-31. Siddiqui, F. (2015, January 20). The users of accounting information and their needs. Retrieved from https://www.linkedin.com/pulse/users-accounting-information-needs-fareed
Theriou, N. G. (2015). Strategic Management Process and the Importance of Structured Formality, Financial and Non-Financial Information. European Research Studies , 18 (2), 3.
