FASB publishes definition of a reporting entity
The Financial Accounting Standards Board (FASB) recently released a new chapter in its Conceptual Framework, dealing with the definition of a reporting entity.
The Conceptual Framework is a series of interconnected principles and definitions that is used to establish balanced and clear accounting standards that meet the objectives of financial reporting and improve access and clarity for investors. Ensuring that concepts and definitions are clear and appropriate doesn’t hit the headlines of business reporting, but helps establish a solid bedrock on which to build standards.
The latest chapter defines a reporting entity as “a circumscribed area of economic activities that can be represented by general-purpose financial reports, which are valuable for existing and potential investors, lenders, and other resource providers in their decision-making process regarding the provision of resources to the entity.” It outlines three key characteristics of a reporting entity: it conducts economic activities, the economic activities can be distinguished from other entities, and financial information reported faithfully in general-purpose financial reports is useful for making decisions about providing resources to the entity.
Circumscribed, huh? We’ll keep thinking about that one.
The new chapter is available on the FASB website.
