Question

Which of the following describes a change in reporting entity?

a. A company acquires a subsidiary that is to be accounted for as a purchase.
b. A manufacturing company expands its market from regional to nationwide.
c. A company divests itself of a European branch sales office.
d. Changing the companies included in combined financial statements.

Answer 1

The term that describes a change in reporting entity is 'Changing the companies included in combined financial statements' as it alters the group of companies whose financial data is reported together.

Step-by-step explanation:

The question presented asks which of the following options describes a change in reporting entity. Among the listed options, the correct answer is option d: Changing the companies included in combined financial statements. This describes a change in the structure of the reporting entity because it involves altering the group of companies whose financial activities are being aggregated and presented as a single economic entity.

When a corporate merger or acquisition occurs, it's not just about combining assets or expanding market reach; it's also about restructuring how the businesses account for themselves in their financial reporting. This often necessitates the integration and consolidation of financial statements to reflect the new combined entity.

While acquiring a subsidiary, expanding markets, or divesting a branch may affect the volume and complexity of financial reporting, these events alone do not typically qualify as a change in the reporting entity to the same extent as would a structural alteration like combining previously separate financial statements.