Change in reporting entity definition
/What is a Change in Reporting Entity?
A change in reporting entity occurs when there is a shift in the composition or structure of the entities included in an organization’s consolidated financial statements. This may result from events such as adding or removing subsidiaries, presenting consolidated instead of separate financials, or changing how entities under common control are reported. It requires retrospective application to ensure consistency across all periods presented.
Accounting for a Change in Reporting Entity
When a business combination occurs, the resulting entity must restate any prior financial statements that it is including in its reporting package for comparison purposes. By doing so, users of the financial statements can more accurately assess current performance against historical results.
The restatement includes adjusting prior period amounts for assets, liabilities, revenues, expenses, and equity to reflect the new entity structure. The nature of the change and the reason for it must be included in the disclosures that accompany the financial statements of the reporting entity. The disclosures should also note the effect of the change on the following items:
Income from continuing operations
Net income
Other comprehensive income
Any related per-share amounts
This accounting ensures transparency and consistency across all reporting periods, allowing users of the financial statements to make meaningful comparisons.