Reporting entity is a type of entity where it is justified to await, that the users like shareholders, employees, investors or creditors must submit a general financial report (GPRF:General Purpose Financial Reports). The goal is to understand the financial situation and analyze the results. This is necessary when making further decisions. "Reporting entity means an entity in respect of which it is reasonable to expect the existence of users who rely on the entity’s general purpose financial statements for information that will be useful to them for making and evaluating decisions about the allocation of resources. A reporting entity can be a single entity or a group comprising a parent and all of its subsidiaries" (K. Reilly, 2015, p.3). Often instead of term reporting entity is used interchangeably accounting entity.
Reporting and Non-Reporting Entity
What is reporting entity has been described above. A non-reporting entity is this type of entity when the persons in charge of management have established that there are no users who are dependent on a GPFR. In such a special situation, a non-rapporteur is allowed to prepare a special, other purpose financial report, not GPFR. It is very important that the managers prove that the unit has users dependent on GPRF. Then they will allow them to identify the subject as not - reporting or reporting. "“Non-reporting entities” are not required to report financial information this way and can report Special Purpose Financial Reports (SPFRs) which have significantly lower reporting requirements than GPFRs" (Ch. Saccon, 2017, p.2).
- Samples of reporting entities: public brands, big private firms with external shareholders who have access only to the annual financial statements and educational organizations.
- Samples of non-reporting entities: private firms with a low number of shareholders (where everyone is employees) and non-profit organizations.
It is also worth to notice one important thing. Some of companies use the GPFR document for marketing activities. In this way, they promote positions in society and on the market. Another important thing is access to GPFR. People who have access to it must be reliable and responsible so as to minimize data leakage. Especially outside, to competitive companies. The distinction between a reporting entity and an entity that is not a reporting entity and a correct familiarization with these terms is important due to the correct preparation of the financial report. Except that, we are aware of the benefits and risks.
Examples of Reporting entity
- Companies: Companies such as Apple, Microsoft, and Google are examples of reporting entities. These companies have shareholders, employees, creditors, and other stakeholders who rely on the company's financial statements to assess their financial performance and make investment decisions.
- Nonprofit Organizations: Nonprofit organizations such as hospitals, universities, and charities are also examples of reporting entities. These organizations provide valuable services to the community, and their stakeholders rely on their financial statements to assess their performance and determine if they are meeting their goals and objectives.
- Government Entities: Government entities, such as cities, states, and federal agencies, are also reporting entities. These entities provide services to the public and their financial statements are used by citizens and stakeholders to assess their performance and make funding decisions.
Advantages of Reporting entity
Reporting entity offers a number of advantages to those who rely on the information it provides. These include:
- Increased transparency and reliability of financial statements and other reports, as reporting entities are required to adhere to strict accounting standards.
- Improved accuracy and completeness of financial statements, which helps users make informed decisions.
- Enhanced credibility and trustworthiness of the financial statements, as reporting entities are subject to regular audit.
- A more comprehensive and updated view of the company’s current financial position, which helps users take better decisions.
- Enhanced ability to compare financial performance over different periods, as reporting entities are required to present the same information in a consistent way.
- Improved ability to identify and measure risks associated with the company, which helps users evaluate the performance and make better decisions.
- Improved ability to compare the performance of companies in the same industry and make more informed decisions.
Limitations of Reporting entity
A reporting entity generally has certain limitations that can prevent it from providing a complete and accurate representation of its financial position and performance. These limitations include:
- Timeliness: Financial reports from reporting entities are typically only available after a certain period of time, often 6 months or more. This can make it difficult to assess the current situation and performance of the entity.
- Complexity: In some cases, financial reports from reporting entities can be complex and difficult to understand. This can make it difficult for outsiders to properly interpret and assess the reported financial information.
- Limited information: Reporting entities may not provide all relevant information in their financial reports, or may not provide it in a consistent or detailed manner. This can make it difficult to assess the performance of the entity.
- Subjectivity: Financial reports from reporting entities can be subject to interpretation and can be influenced by the biases of those preparing them. This can make it difficult to gain an accurate and objective view of the performance of the entity.
A reporting entity is an entity whose financial performance is reported to interested parties like shareholders, employees, investors, or creditors. Some other approaches related to reporting entity are:
- Consolidated Reporting: Consolidated reporting is a method of reporting the financial performance of a parent company and all its subsidiaries as a single entity.
- Pro Forma Reporting: Pro forma reporting is the reporting of financial performance on a hypothetical basis, that is, as if certain events had already occurred.
- Management Reporting: Management reporting is the reporting of financial performance and other relevant data to the management of a company.
- Regulatory Reporting: Regulatory reporting is the reporting of financial performance and other relevant data to a governmental or regulatory body.
In summary, reporting entity is an entity that reports its financial performance to different interested parties such as shareholders, employees, investors, and creditors. Other approaches related to reporting entity include Consolidated Reporting, Pro Forma Reporting, Management Reporting, and Regulatory Reporting.
- Carey P., Potter B., Tanewski G.A., (2015), Application of the Reporting Entity Concept in Australia
- Federal Accounting Standards Advisory Board, (2013), Reporting Entity: Statement of Federal Financial Accounting Standards,
- Reilly K., (2015), Reporting Entities, Non-Reporting Entities and the Reduced Disclosure Regime
- Rosenfield P., (2006), Contemporary Issues in Financial Reporting: A User-Oriented Approach, Routledge, New York
- Ruppel W., (2010), Wiley GAAP for Governments 2010: Interpretation and Application of Generally Accepted Accounting Principles for State and Local Governments, John Wiley & Sons, New Jersey
- Saccon Ch., (2017), The Reporting Entity Concept in Australia: An Exploration of the Impact and Comparison to International Standards
Author: Edyta Krzyczman