Final answer:
A change in reporting entity typically refers to changing the companies included in combined financial statements, such as when an acquisition or divestiture occurs, resulting in a change in the composition of the group of companies that are consolidated.
Step-by-step explanation:
Which of the following describes a change in reporting entity? The option that best describes a change in reporting entity is d. changing the companies included in combined financial statements. A change in reporting entity can occur when there is a change in the composition of the group of companies for which the consolidated financial statements are prepared. This could involve adding a new subsidiary, as through an acquisition, or removing a company, such as divesting a business unit or branch.
An acquisition is a type of corporate merger, which involves one firm purchasing another and operating under common ownership. Mergers also include lateral combinations, where firms of similar sizes join to become a single entity. Yet, not all acquisitions lead to immediate changes in reporting entities, as the acquired firm may continue to operate under its previous name and might initially be kept separate for reporting purposes. The key element is that two formerly separate firms are under common ownership after the merger or acquisition, which could eventually lead to a change in the reported financial statements of the entity.