What is an accounting entity?

Accounting entity is an organization that records and reports business or financial information separately from other businesses. Accounting entities must have economic transactions resulting from transactions with the length of weapons in the business environment; These transactions indicate that the entity is a legal trade and has important financial information that must be reported to internal or external users. Accounting entities can be an independent company or a subsidiary of a company or an individual distribution of a parent company. A subsidiary or divisional accounting entity must have its financial information reported separately from financial information or statement of the parent company. Parent companies must comply with specific accounting or legal rules in carrying out business operations with their subsidiaries.

In order to be considered an independent business operation, accounting entities should not have more than 50% of their voting shares owned by other companies. Generally receive accountantsED (GAAP) requires that parent companies report business information on consolidated financial statements if they own more than 50% of another company's voting shares. This rule also applies to the level of ownership that parent companies in subsidiaries have. The percentage of shares between the parent company and the individual accounting entity is the basic instructions for determining how each company reports business information on the financial statements.

Companies should proceed with extreme caution when reporting financial information about individual accounting subjections or subsidiaries. An attempt to transfer the main debts or other obligations owed by the parent company can have serious legal consequences. Transfer of revenue or business assets from an accounting entity to a parent company may also have serious complications SINC it will present false information SOUexcept for investors. Publicly held companies may also be subject to independent investigations of the US Securities and Stock Exchange (SEC) Commission (SEC) in terms of their activities in the use of a separate accounting entity for business operations. This independent investigation dates back to the early 1920s, when several accounting scandals swung the accounting industry.

During the main accounting scandals in 2001, Enron tried to move significant business losses and debt to special purpose entities to maintain negative financial information outside his public financial statement. This transfer of financial information was later considered illegal by federal regulators; Enron was forced to rework its earnings for the financial statements for several previous accounting periods, resulting in operating losses rather than profits. Enron is now considered a classic example of the inappropriate use of individual accoutentity for distortion of financial information.