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EFRAG agrees that the revised Framework should address the notion of a ‘reporting entity’. It also broadly agrees with the proposed description of a reporting entity as “a circumscribed area of business activity of interest to present and potential investors, lenders and capital providers”.
EFRAG believes that a key issue for discussion is how the area of business activity should be “circumscribed”; in other words, what the connection should be between the business activities included within a single reporting entity. The paper proposes that the connection should be based on the existence of control, but EFRAG believes it should be both control and risks and rewards.
EFRAG broadly agrees with what the paper suggests ‘control’ should mean in this context, including the suggestion that control over another entity entails both power over that entity and the ability to obtain benefits. The paper proposes that consolidated financial statements should be presented from an entity perspective.
However, EFRAG believes it is premature to reach conclusions on this issue before an in-depth analysis of all the issues involved has been carried out and that analysis has been comprehensively debated.
EFRAG agrees that, if an entity that is a parent prepares a set of financial statements and accompanying notes that contain no information prepared on a consolidated basis, those financial statements will often not meet the proposed objective for general purpose financial reporting set out elsewhere in the Framework. In EFRAG’s view, such information will often need to be supplemented by a full set of consolidated financial statements for the objective to be met. This could mean that the separate financial statements of a parent entity are not general purpose financial reports.
Deadline for comments is