The mysterious user of financial statements

IAS1 [1] tries to describe users of financial statements but fails. They explain three types of user that are not quite identical. This makes the definition unclear.

The IAS hides the most precise user in paragraph 7 as part of the definition of ‘material’, a place where one would not search for it. He or she is the ‘primary user’. Primary users are existing and potential investors, lenders and other creditors. They add that “general purpose financial statements are directed” at primary users.

 It should be noted here that a primary user has a “reasonable knowledge of business” and reviews and analyses the information diligently. I suppose this information relates to that provided in the financial statements even if not stated. However the IAS does not give us any guidance about primary users who do not have a reasonable knowledge of the business. They do not declare that they are not primary users any more. They say nothing, leaving us in an unsettling limbo.

The second user, in paragraph 9 reads financial statements to make “economic decisions” about the company in question. Now this user includes the primary user above, but is a user who may not be an investor, lender or a creditor. This definition is wider than that of the primary user. They do not explain who this person might be, but it could include, for instance, a potential lender who decides not to lend. This person has made an economic decision and is not a primary user.

Finally the third and final user, also in paragraph 7 as part of the definition of general purpose financial statements, is a person not in a position to request information from the company. This describes anybody anywhere, except the few who have the power or status to require the company to produce information.

A user cannot be all three of these at the same time. I am not sure what the IASB is trying to tell us here. Have they done this on purpose?  Did they make a mistake? Are they hoping nobody will discover the anomaly? Does it matter anyway? Whatever their intentions they are unclear.

[1] International Accounting Standard 1, Presentation of Financial Statements, IAS1