Conceptual Framework for Financial Reporting

Going concern assumption
Financial statements are normally prepared on the assumption that the
reporting entity is a going concern and will continue in operation for the
foreseeable future. Hence, it is assumed that the entity has neither the
intention nor the need to enter liquidation or to cease trading. If such an
intention or need exists, the financial statements may have to be prepared on
a different basis. If so, the financial statements describe the basis used.
3.4
3.5
3.6
3.7
3.8
3.9
Conceptual Framework
A34
© IFRS Foundation

---

The reporting entity
A reporting entity is an entity that is required, or chooses, to prepare financial
statements. A reporting entity can be a single entity or a portion of an entity
or can comprise more than one entity. A reporting entity is not necessarily a
legal entity.
Sometimes one entity (parent) has control over another entity (subsidiary). If a
reporting entity comprises both the parent and its subsidiaries, the reporting
entity’s financial statements are referred to as ‘consolidated financial
statements’ (see paragraphs 3.15–3.16). If a reporting entity is the parent
alone, the reporting entity’s financial statements are referred to as
‘unconsolidated financial statements’ (see paragraphs 3.17–3.18).
If a reporting entity comprises two or more entities that are not all linked by a
parent-subsidiary relationship, the reporting entity’s financial statements are
referred to as ‘combined financial statements’.
Determining the appropriate boundary of a reporting entity can be difficult if
the reporting entity:
(a)
is not a legal entity; and
(b)
does not comprise only legal entities linked by a parent-subsidiary
relationship.
In such cases, determining the boundary of the reporting entity is driven by
the information needs of the primary users of the reporting entity’s financial
statements. Those users need relevant information that faithfully represents
what it purports to represent. Faithful representation requires that:
(a)
the boundary of the reporting entity does not contain an arbitrary or
incomplete set of economic activities;
(b)
including that set of economic activities within the boundary of the
reporting entity results in neutral information; and
(c)
a description is provided of how the boundary of the reporting entity
was determined and of what constitutes the reporting entity.