Respond to the following: a. List some of the possible groups of financial statement users. b. What is meant by “user diversity,” and does user diversity create a potential problem?

Question

What will be an ideal response?

Answer 1

ANSWER:
Possible user groups include:

(1) Shareholders (actual and potential)
(2) Creditors
(3) Financial analysts and advisers
(4) Employees
(5) Labor unions
(6) Customers
(7) Suppliers
(8) Industry trade associations.
(9) Governmental agencies
(10) Public-interest groups
(11) Researchers and standard setters

User diversity refers to the fact that different users have different types of objectives. For example, actual shareholders probably desire information that would maximize security values, whereas potential shareholders would prefer information that would minimize security values. This creates a potential problem because it is not clear whether the information needs of the various types of objectives can be satisfied by general-purpose financial statements. However, despite the heterogeneity of groups of users as well as within groups, empirical research has not proven that the groups have strongly differentiated information needs.