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Definition
The financial accounting term changes in reporting entity refers to a switch from one type of reporting entity to another. Changes in reporting entity can fall into several categories, including a change in subsidiaries, the number of companies combined into a consolidated report, as well as the mix of companies appearing in a consolidated report.
Explanation
While the accounting profession is provided guidance by the Financial Accounting Standards Board when it develops Generally Accepted Accounting Principles, oftentimes these professionals have several options from which to choose. When deviating from past practices, or modifying information appearing in financial reports, these "accounting changes" fall into three categories: estimates, methods, and reporting entities.
When this type of change occurs, the profession is required to disclose this information in the company's financial statements. In the case of reporting entities, accounting standards also require the restatement of prior financial statements. At a minimum, this includes sales revenue, income before extraordinary items, net income, and earnings per share. This allows the analyst-investor to accurately assess current versus past performance.
A change in reporting entity covers several scenarios; the three most common of which include:
Preparing a consolidated financial statement instead of preparing separate statements for individual companies within an enterprise.
Changing the mix of companies or subsidiaries previously reported in a combined or consolidated financial statement.
Changing the number of companies or subsidiaries previously combined into a consolidated financial statement.
Related Terms
The term change in accounting principle refers to the adoption of an accounting method that differs from that used in the past. When an alternate accounting method is chosen, the impact on the company's financial statement must be shown in the current accounting period as well as retrospectively.
Moneyzine EditorJanuary 11th, 2024
The term changes in accounting estimates referrers to those estimations that require revision based on the availability of new and better information in the current accounting period. Changes in accounting estimates can involve revenues, expenses, liabilities and assets; and are corrected prospectively in the financial statements of a company.Moneyzine EditorNovember 6th, 2024
The term accounting changes is used to describe three categories of changes disclosed in the financial statements of a company. Accounting changes can include: a change in accounting principal, accounting estimates, and reporting entities. Disclosures should include a description of the change as well as its effect on financial statements.Moneyzine EditorNovember 6th, 2024
The financial accounting term correction of an error in financial reports refers to the rectification of a mistake caused by a transaction that was recorded incorrectly or omitted. Accounting principles require the retrospective restatement of financial statements that were incorrect.Moneyzine EditorNovember 6th, 2024
