What is a Stakeholder?

What is a Stakeholder?

Accounting is defined as the language of business. Accounting is a mean by which business financial information is communicated to its stakeholders.

In this article, you will learn about the definition of a stakeholder ~ the users of accounting information ~ and how they use such financial reports to their decision making.

Users of Accounting Information

A stakeholder is an individual, group of individuals or organizations that is concerned in the economic performance and condition of a business for they use that information in their decision making.

Stakeholders are also referred to as the users of accounting information. They are directly or indirectly affected by the financial condition and performance of a business because of their association to its economic activities.

There are two classifications of business stakeholders: primary (internal) and secondary (external).

1. Primary (Internal) Stakeholders

Primary (Internal) Stakeholders are individual, group of individuals or organizations who are directly involved in the affairs and transactions of the business. It includes the owners or stockholders, managers and employees, creditors, customers, and suppliers.

a. Owners

Owners are individual or group of individuals who have invested capital resources into the business. They are called proprietor (for sole proprietorship), partners (for partnership), and stockholders (for corporation).

Most owners are interested in the financial reports primarily to know how well the business is performing and profiting. Most reason is that they want to warrant that the value of their capital investment will gain or profit. Additionally, owners are also interested to know if the business resources are enough to keep the operation running to sustain daily transactions and operations.

b. Employees

An employee is an individual or group of individuals that works in a business entity or organization. They provide their professional services, skills and talents in exchange for a pay check or salary.

Employees include the manager (those who oversee the business operations) and rank and file staff (those who perform the daily operation of the business).

Both the managers and the staffs are concerned in the financial performance and condition of the business as their job and salary depends on it. If the business is incurring losses, they might lose their job while if the business is profiting, they can hope for salary increase or high bonus pay.

c. Suppliers

Suppliers are individual, group of individuals or organizations which delivers goods or services to the business. They are interested in the business’ financial condition and performance to determine the extent of credit discounts and grace periods they will grant. Also, they want to know how much inventory they will expect to retain and deliver to the business.

d. Creditors

Creditors are individual, group of individuals or organizations who are providing financial resources and assistance to the business by extending credits or loans. Their primary interest in the financial reports is to determine if they will be able to collect and recover their financial investment or assistance to the business.

2. Secondary (External) Stakeholders

Secondary (External) Stakeholders are individual, group of individuals or organizations who are not directly involved in the affairs and transactions of the business, but may or may not be affected by its decisions and actions.

Secondary (External) Stakeholders include, but not limited to, government agencies ~ like the internal revenue, state or local government unit, general public, community or group of businessmen, media, potential investors, financial analyst, stock brokers, etc.

The external stakeholders are interested in the financial report of performance and condition of the business for their certain relevant concerns, such as collection of taxes and licenses for the government unit, possible return of investment for potential investors, publicity and public awareness for media, etc.

I hope you were able to learn deeper knowledge on what the role of a stakeholder in business is, and how they use accounting information.  Your comments and feedbacks will be appreciated.

Recommended Reading

If you want to learn more about the business stakeholders, you will gain deeper knowledge with this book:

Business and Society: Ethics, Sustainability, and Stakeholder Management
This book demonstrates how the most successful business decision makers balance and protect the interests of various stakeholders, including investors, employees, the community, and the environment — particularly as business recovers from a perilous financial period.  You will be able to pick up tools on how to make strong business decisions with a better understanding of business ethics, sustainability and stakeholder management from a strong managerial perspective.

Comments

  1. Mrs asim ali says:

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