Describe what is meant by a reporting entity

Answer 1

Entity

The definitions of financial statement elements, including assets, liabilities, revenues, and expenses, refer to a reporting entity. The concept of a reporting entity pertains to a group
of entities pursuing a common business purpose under the control of one of the entities in the group. For example, a single entity may operate through subsidiaries, joint ventures, trusts, partnerships, and other corporations. It may control some or all of these other entities.

The concept of control includes both the power, or capacity, to direct the strategic, operating,
investing, and financing activities of another entity, and the ability to benefit from increases
in the value of the other entity and to incur losses from decreases in value.

Both U.S. GAAP and IFRS often refer to ownership of a majority of the voting stock of
another entity as indicating control, unless evidence indicates that the majority owner cannot
exercise control. Firms sometimes operate through entities that lack economically meaningful
ownership interests, like a trust, or entities where control arises through contractual rights without ownership of voting stock. Identifying the reporting entity in these cases is more difficult.