Conceptual Framework Phase D — Reporting Entity

Date recorded:

The Board discussed various issues raised by respondents to the Board's Discussion Paper Preliminary Views on an Improved Conceptual Framework for Financial Reporting: The Reporting Entity. The decisions made in this session will be accommodated in the next phase of this project, which is an exposure draft due later in 2009.

Definition of the reporting entity

The Board agreed that the reporting entity should be described and defined in the Framework as:

The Board agreed that a reporting entity would usually have 'observable boundaries' that would have legal or contractual rights attached to them. This would permit (not preclude) a branch or segment of a legal entity being a reporting entity.

The Board agreed to clarify that a reporting entity should be determined based on the economic activities the entity is capable of or authorised to conduct and agreed that changes in Phase A (Objectives and Qualitative Characteristics) regarding the primary users of financial reports should be carried over to the definition of a reporting entity.

Implications of the definition

With almost no discussion, the Board agreed the following implications of the definition of the reporting entity:

  • A reporting entity need not be a legal entity
  • That the ED should clarify that a legal entity likely would (but not necessarily) meet the definition of a reporting entity
  • A branch or segment of a legal entity could meet the description of a reporting entity


Group reporting entity

With respect to the group reporting entity, the Board agreed that:

  • The ED should acknowledge both the controlling entity model and the common control model, and should include a discussion of when the common control model might be appropriate. (The FASB in an educational session earlier in January 2009 had suggested that the controlling entity model should be used in most cases. The IASB thought this was too prescriptive for a concepts-level document.)
  • The ED should not discuss the risks and rewards model as a standalone model but discuss it in the context of complementing the controlling entity model (if appropriate)
  • The ED should not discuss models other than the controlling entity model and the common control model.


Consolidated and parent-only financial statements

While agreeing with what the staff were proposing, the Board disagreed with how they had expressed their proposals in the agenda paper, especially a proposal that the 'financial statements of an entity that does not have a subsidiary, affiliate, or venturer's interest in a jointly controlled entity should be considered consolidated financial statements', which they thought was particularly unhelpful.

The Board seemed to agree with a suggestion that emerged during the discussion that the focus should be that the financial statements should present the consolidated results of the controlling entity (that is, the parent) and all subsidiaries (if any). If the parent had no subsidiaries, these 'top level' financial statements would still be IFRS general purpose financial reports and should be within the scope of (for example) the EU IAS Regulation. The Board also agreed that parent-only financial statements, provided they were presented with the consolidated financial statements, could be described as 'general purpose financial statements.' A majority of the Board seemed to be of the view that, if presented alone, parent-only financial statements were 'special purpose' because (while useful) they were incomplete.

The Board agreed that the ED should not discuss whether or how parent-only financial statements should be presented (this is either a jurisdictional or standards-level issue).

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