Advantages of the Reporting Entity Concept Accounting, Finance Paper (Research Paper Sample)

Advantages of the Reporting Entity Concept
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Advantages of the Reporting Entity Concept
Abstract
SAC1 defines a reporting entity as commercial units whose formation attracts potential users who rely on financial reports in their decision making. The information is significant in allocating scarce resources. SAC1 clearly outlines the concept and points out its applications. According to SAC1, the reporting entity concept focuses on determining the units that should report and prepare GPFSs. Typically, the ideas are essential since it helps in the identification of reporting entities, concepts of differential reporting, understanding of GPFRSs, and characterizations of users’ category.
Introduction
A reporting entity refers to a reasonable unit in the financial and accounting department which has the responsibility of providing general purpose financial reports to depending users. The reports allow users to understand the monetary status and position of the reporting segment. The information help users in making a critical decision and drawing conclusion based on the provided financial reports. The users of financial statements could be creditors, shareholders, lenders, potential investors, employers, and other relevant corporate members. SAC1 specifies that the primary task of reporting entities is to generate GPFR, which is contrary to a non-reporting body that prepares special purpose financial reports that are not GPFR. It is essential for entities charged with governance to document whether they have users depending on their reports to qualify as a reporting segment. Therefore, understanding reporting entity concept is vital because it provides a yardstick that categorizes entities that are expected to report GPFR, clarifies the meaning of GPFR, allows differential reporting, and clarifies between users and potential users of financial statements.