by A change in reporting entity is a change that results in financial statements that are effectively those of a different reporting entity. This usually involves changing from individual to consolidated reporting, or altering the subsidiaries that make up a group of entities whose results are consolidated.
A change in reporting entity requires retrospective treatment, which means that any prior periods that will be presented in the current year financial statements need to be restated. A change in reporting entity specifically addresses the fact that the comparable financial periods need to include the financial results for the same legal entities or reporting units.
A change in reporting entity occurs when two or more previously separate entities are combined into one entity for reporting purposes, or when there is a change in the mix of entities being reported. When this 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 reason for the change in reporting entity must be included in the disclosures that accompany the financial statements of the reporting entity.
A change in reporting entity is:
“A change that results in financial statements that, in effect, are those of a different reporting entity.”
A change in reporting entity is generally limited to the following types of changes:
- Changing specific subsidiaries that make up the group of entities for which consolidated financial statements are presented.
- Presenting consolidated or combined financial statements in place of financial statements of individual entities.
- Changing the entities included in combined financial statements.
Changes in the reporting entity mainly transpire from significant restructuring activities and transactions. Neither business combinations accounted for by the acquisition method nor the consolidation of a variable interest entity (VIE) are considered changes in the reporting entity.
For financial statements of periods in which there has been a change in reporting entity, an entity should disclose the nature of and reasons for the change. In addition, the effect of the change on income from continuing operations, net income (or other appropriate captions of changes in the applicable net assets or performance indicator), other comprehensive income, and any related per-share amounts shall be disclosed for all periods presented. If the change in reporting entity does not have a material effect in the period of change, but is expected to in future periods, any financial statements that include the period of change should disclose the nature of and reasons for the change in reporting entity.
