The FASB has issued a second chapter of its Concepts Statement No. 8, Conceptual Framework for Financial Reporting entitled “The Reporting Entity”. This chapter describes a reporting entity and provides a framework for matters relating to the identification of a reporting entity.

The Concepts Statement defines a reporting entity as “a circumscribed area of economic activities that can be represented by general purpose financial reports that are useful to existing and potential investors, lenders, and other resource providers in making decisions about providing resources to the entity.” Under the Concepts Statement, a reporting entity has three features:

1. Economic activities have been conducted.
2. Those economic activities have been distinguished from those of other entities.
3. The financial information in general purpose financial reporting faithfully represents the economic activities of the entity in the circumscribed area and is useful in making decisions about providing resources to the entity.

The Concepts Statement clarifies that the existence of a legal entity is not necessary to identify a reporting entity, and a reporting entity can include more than one entity, or it can be a portion of an entity. The Concepts Statement also indicates that consolidated financial statements for parent-subsidiary relationships most faithfully represent the operating results of an economic unit. Parent-only financial statements, which may be useful or required, would not meet the objective of general purpose financial reporting. The Concepts Statement also notes that there could be circumstances in which presentation of a portion of a larger entity or presentation of combined financial statements would allow for the faithful representation of economic activities.

The FASB Concepts Statements are not authoritative and the FASB acknowledges that the Concepts Statement is not meant to override authoritative standards. However, if a transaction is not specified in authoritative GAAP, an entity must first consider accounting principles for similar transactions or events within authoritative GAAP and then consider nonauthoritative guidance from other sources such as the Concepts Statements.

^{Readers should not act upon information presented without individual professional consultation.}