The current IFRS provides guidance on how a
reporting entity should report financial information but the definition of
reporting entity is not provided. Therefore, the IASB has proposed the
definition of a reporting entity in Chapter 3 of the ED. In paragraph 3.11 of
the ED, it has described reporting entity as an entity that chooses, or is
required, to prepare general purpose financial statements. However, the
definition just uses entity as a reference, it did not give a clear explanation
of an entity. Paragraph 3.12 has further explained reporting entity is not
necessarily a legal entity. The ED does not clarify what is a legal entity. As
there are many types of entities a reporting entity may be, such as a
corporation, trust, general partnership, limited partnership, branches and
unlimited companies, it may confuse the stakeholders if no clear clarification
is given. The boundary and control of the reporting entity are discussed in the
ED as well. Paragraph 3.13 to 3.25 are based on control, there are no concepts
that help to identify control of an entity. This would matter because
consolidated financial statements will be presenting assets that are held in
other entities and liabilities for which the parent does not have primary
responsibility. The issue of faithful representation will arise.