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ACCA Strategic Professional · Strategic Business Reporting (International) · Discussion of issues in financial reporting

Orion Group's reporting entity is defined as the parent only, although it controls several subsidiaries. A director suggests this is acceptable because the Conceptual Framework allows any entity to choose its boundary. Which statement is consistent with the Conceptual Framework?

Consolidated statements are provided where one entity controls another, because they give users of the parent's statements useful information. A reporting entity need not be a single legal entity, and its boundary is set by the information needs of users, not by management's free choice.

  1. AConsolidated statements are provided when one entity controls another, and the boundary is determined by the aim of useful information to usersCorrect
  2. BThe reporting entity must always be a legal entity, so consolidated statements are not general purpose
  3. CManagement can choose the boundary freely, provided it is disclosed
  4. DUnconsolidated statements of the parent alone are always preferred for investors

Explanation

The Framework says a reporting entity need not be a legal entity and may comprise a portion of an entity or more than one entity. When an entity controls another, consolidated statements provide useful information to the parent's investors and creditors. The boundary is not a free management choice.

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