## Users of Cost and Management Accounting

### Internal Users (within the organisation)

#### (a) Policy Makers (Top Management / Board)

Formulate strategies to achieve short-term and long-term goals.
Position the organisation in the competitive market environment.
Design the organisational structure to implement policies effectively.

#### (b) Managers (Middle Management)

Determine the cost of cost objects and cost centres.
Establish product or service prices.
Measure and evaluate performance of responsibility centres.
Analyse profitability by product, department, customer, etc.
Evaluate strategic options and make operational decisions.

#### (c) Operational Level Staff

Understand their objectives and performance goals.
Access product/service specifications (volume, quality, processes).
Know the performance parameters against which they are evaluated.
Gain insights into divisional (responsibility centre) profitability.

#### (d) Employees

Access information on time and attendance records.
Understand incentive schemes and performance standards.

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### External Users (outside the organisation)

#### (a) Regulatory Authorities

Require cost data for: tariff determination, providing subsidies, rate fixation.
Need information in specific standards and formats.

#### (b) Auditors

Use costing information during financial or special-purpose audits (e.g., cost audits).
Review management reports related to costing.

#### (c) Shareholders

Concerned with information that affects their investment.
Receive periodic communiqués and annual reports on new orders, product expansions, and market share.

#### (d) Creditors and Lenders

Interested in data that impacts the entity's ability to repay.
Regularly receive reports on net debt position and stock balances.

Worked example

### Example 1

A bank wants to assess whether a manufacturing company can repay its term loan. It requests stock reports and net debt statements. Which user category is this?

Answer: Creditors and Lenders — an external user monitoring the company's ability to service its financial obligations.

### Example 2

A state electricity regulator requires a power company to submit unit-wise cost of generation to determine consumer tariffs. Which user category?

Answer: Regulatory Authorities — an external user requiring cost data for rate fixation.

### Example 3

A factory floor supervisor reviews their daily output targets and actual waste percentage against the standard. Which user category?

Answer: Operational Level Staff — an internal user who needs to understand the performance parameters against which they are evaluated.

⚠️ Common exam mistakes

Classifying shareholders as internal users — shareholders are external users unless they are simultaneously employees or executive directors.
Forgetting auditors (especially cost auditors) as external users — they rely on cost accounting data during cost audits and special-purpose audits.
Treating all four external user categories as having the same information needs — each has distinct needs: regulators need tariff data, lenders need debt/stock reports, auditors need cost records, shareholders need investment-related information.

Reference:

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Internal and External Users of Cost and Management Accounting

Worked example

⚠️ Common exam mistakes