Reporting entity

An entity that chooses, or is required, to prepare general purpose financial statements.

The Conceptual Framework provides the following guidance [Conceptual Framework 3.10 – 3.14]:

A reporting entity can be a single entity or a portion of an entity or can comprise more than one entity. A reporting entity is not necessarily a legal entity.

Sometimes one entity (parent) has control over another entity (subsidiary). If a reporting entity comprises both the parent and its subsidiaries, the reporting entity’s financial statements are referred to as ‘consolidated financial statements’. If a reporting entity is the parent alone, the reporting entity’s financial statements are referred to as ‘unconsolidated financial statements’.

If a reporting entity comprises two or more entities that are not all linked by a parent-subsidiary relationship, the reporting entity’s financial statements are referred to as ‘combined financial statements’.

Determining the appropriate boundary of a reporting entity can be difficult if the reporting entity:

  1. is not a legal entity; and
  2. does not comprise only legal entities linked by a parent-subsidiary relationship.

In such cases, determining the boundary of the reporting entity is driven by the information needs of the primary users of the reporting entity’s financial statements. Those users need relevant information that faithfully represents what it purports to represent. Faithful representation requires that:

  1. the boundary of the reporting entity does not contain an arbitrary or incomplete set of economic activities;
  2. including that set of economic activities within the boundary of the reporting entity results in neutral information; and
  3. a description is provided of how the boundary of the reporting entity was determined and of what constitutes the reporting entity.

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