What is a reporting entity? (with photos)

A reporting entity may produce financial reports for its suppliers and investors.

A reporting entity is a company with an obligation to prepare external financial reports for the benefit of parties with an interest 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.

Shareholders are entitled to an annual company report for use in making investment decisions.

Reporting entities have what are known as “dependent users” or individuals, companies and organizations who need access to financial information but may not be able to obtain it directly. Investors are a prime example; they need information about a company’s performance so they can make investment decisions, but they don’t 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 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, suppliers offering letters of credit need to know that the company is not a big risk.

Smaller companies are more nebulous. It can be difficult for a small business owner to separate personal from business assets, especially as some may use personal assets, such as a home, to secure loans and other sources of funding. This combines the company and the owner, and would make it appear to be something other than a reporting entity. However, there may still be stakeholders in its economic health and performance.

See also  What can I do if I lose a receipt? (with photo)

When a company is classified as a reporting entity, it needs to prepare external and public reports on its financial health. They must meet standards and be of a consistent nature so that the individuals reviewing them know that the information is useful for multi-year comparisons. Reports must be made available, upon request, to interested parties, and the company may also need to send them to specific groups, such as shareholders, who are entitled to an annual company report for use in making investment decisions.

Leave a Comment