A reporting entity is a business that prepares external financial reports for interested parties, such as investors and suppliers. They have “dependent users” who need access to financial information but cannot obtain it directly. The entity must meet standards and provide consistent reports upon request.
A reporting entity is a business with an obligation to prepare external financial reports for the benefit of parties interested in its operations, such as suppliers and investors. The term “accounting entity” can be used in a similar way. Among accountants, including those involved in setting standards and practices, there is some debate about the precise definition of a reporting entity. The latest industry opinions are available from professional accounting organizations.
Reporting entities have what are known as “dependent users”, or individuals, companies and organizations that need access to financial information but cannot obtain it directly. Investors are a prime example; They need information about a company’s performance in order to make investment decisions, but they do not have access to the company’s internal accounting records. These entities are also distinct from their owners and employees. A supermarket chain, for example, has separate finances from those of the owners and workers.
Sometimes a reporting entity is very easy to identify. A publicly traded company meets basic standards, for example. Investors need access to financial information, suppliers need to know how well the company is doing to decide whether to offer credit, and other companies need recent information to negotiate deals with the company. With a private company, some of these criteria may still be met; For example, vendors offering letters of credit need to know that the business does not pose a great risk.
Smaller companies are more nebulous. It can be difficult for a small business owner to separate business and personal assets, especially since some may use personal assets such as a residence to obtain loans and other sources of financing. This combines the business and the owner, and it would appear that it is more than just a reporting entity. However, there may still be stakeholders in your financial health and performance.
When a company is classified as a reporting entity, it needs to prepare public and external reports on its financial condition. They must meet standards and be consistent in nature so that reviewers know that the information is useful for multi-year comparisons. The reports must be made available upon request by interested parties, and the company must also send them to specific groups, such as shareholders, who are entitled to an annual report on the company for use in making investment decisions.
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