Chapter 1, Problem 2E

A)

To determine

Introduction:

Key users of accounting and financial information:

• There are two main categories of key users of accounting and financial information: Internal Users or External Users. Accounting and financial information comprises of information from the financial statements such as income statement, balance sheet etc.

• Internal Users refer to stakeholders such as employees and management personnel of the company. They are responsible for the internal operations in various capacities and review accounting and financial information for process improvement and financial statement analysis purposes.

• External Users refer to Stakeholders such as Government, Banks, Credit agencies and Shareholders etc. They interact and have both financial and non-financial interest in the operations of the company and review accounting and financial information from an investment perspective as well as to get information about financial health of the company.

To Determine:

Whether questions are likely to be asked by internal or external users

Answer to Problem 2E

Solution:

	Question	Type of User
1	What are reasonable payroll and wages	I
2	Should we make loan to the business	E
3	What are the Costs of Products' Ingredients	I
4	Do the Income levels justify stock prices	E
5	Should we spend money to redesign product	I
6	Which firm reports highest sales and income	E
7	What are the Costs of services to Customers	I

Explanation of Solution

• The internal and external users of the business review financial and accounting information periodically to get a deeper understanding of the state of affairs as well as get deeper insights of the key metrics of the accounting and financial statements.

• Internal Users comprise of employees and management personnel of the company. They manage internal operations in various capacities and review accounting and financial information for process improvement and financial statement analysis purposes.

• External Users comprise of Government, Banks, Credit agencies and Shareholders etc. They deal with and have financial and non-financial stake in the operations of the company. They review accounting and financial information from an investment perspective as well as to get information about financial health and wellbeing of the company.

• What are reasonable payroll and wages is a question most likely to be asked by an Internal User since it concerns the routine operations and internal affairs of the company.
• Should we make loan to the business is a question most likely to be asked by an External User since it is concerned with Financial Health and is concerned with investment in the company with intent to invest in the company for a minimum return.

• What are the Costs of Products' Ingredients is a question most likely to be asked by an Internal User since it concerns the routine operations and internal affairs of the company.

• Do the Income levels justify stock prices
  is a question most likely to be asked by an External User since it is concerned with Financial Health and is concerned with investment in the company with intent to invest in the company for a minimum return.

• Should we spend money to redesign product is a question most likely to be asked by an Internal User since it concerns the routine operations and internal affairs of the company.

• Which firm reports highest sales and income is a question most likely to be asked by an External User since it is concerned with Financial Health and well-being of the company on a comparative basis.

• What are the Costs of services to Customers is a question most likely to be asked by an External User since it is concerned with Financial Health and is concerned with investment in the company with intent to invest in the company for a minimum return.

Conclusion

Hence the questions have been classified.

B)

To determine

Introduction:

Key users of accounting and financial information:

• There are two main categories of key users of accounting and financial information: Internal Users or External Users. Accounting and financial information comprises of information from the financial statements such as income statement, balance sheet etc.

• Internal Users refer to stakeholders such as employees and management personnel of the company. They are responsible for the internal operations in various capacities and review accounting and financial information for process improvement and financial statement analysis purposes.

• External Users refer to Stakeholders such as Government, Banks, Credit agencies and Shareholders etc. They interact and have both financial and non-financial interest in the operations of the company and review accounting and financial information from an investment perspective as well as to get information about financial health of the company.

To Determine:

Whether users would be Internal Users or External Users

Answer to Problem 2E

Solution:

	Question	Type of User
1	Research and Development Director	I
2	Human Resources Director	I
3	Non Executive Employee	I
4	Shareholders	E
5	Distribution Managers	I
6	Creditors	E
7	Production Supervisor	I
8	Purchase Manager	I

Explanation of Solution

• The internal and external users of the business review financial and accounting information periodically to get a deeper understanding of the state of affairs as well as get deeper insights of the key metrics of the accounting and financial statements.

• Internal Users comprise of employees and management personnel of the company. They manage internal operations in various capacities and review accounting and financial information for process improvement and financial statement analysis purposes.

• External Users comprise of Government, Banks, Credit agencies and Shareholders etc. They deal with and have financial and non-financial stake in the operations of the company. They review accounting and financial information from an investment perspective as well as to get information about financial health and wellbeing of the company.

• Research and Development Director would be classified as an Internal User since they are responsible for operations of the business in a specified capacity and share an employer-employee relationship with the company.
• Human Resources Directorwould be classified as an Internal User since they are responsible for operations of the business in a specified capacity and share an employer-employee relationship with the company.

• Non-Executive Employeewould be classified as an Internal User since they are responsible for operations of the business in a specified capacity and share an employer-employee relationship with the company.

• Shareholders would be classified as External Users since they have a monetary interest in the financial health and operational efficiency of the company. Shareholders also have a vested interest in the company since investments are made in the company by them.

• Distribution Managerswould be classified as an Internal User since they are responsible for operations of the business in a specified capacity and share an employer-employee relationship with the company.

• Creditorswould be classified as External Users since they have a monetary interest in the financial health and operational efficiency of the company. Creditors also have vested interest in the company since the company owes creditors money for goods / services purchased.

• Production Supervisorwould be classified as an Internal User since they are responsible for operations of the business in a specified capacity and share an employer-employee relationship with the company.

• Purchase Managerwould be classified as an Internal User since they are responsible for operations of the business in a specified capacity and share an employer-employee relationship with the company.

Conclusion

Hence the users have been classified.