How should a change in reporting entity be applied in the financial statements?

A change in reporting entity requires a retrospective application in the financial statements, meaning it should be reflected in all prior periods presented. This approach ensures that financial statements are comparable over time and that users can effectively assess the financial performance and position of the entity as if the new reporting entity structure had always been in place. This reflects a commitment to transparency and consistency, allowing stakeholders to make more informed decisions based on a comprehensive view of the financial history of the reporting entity.

The need for note disclosures in conjunction with the retrospective application is also crucial, as it provides context and additional information about the reasons for the change and its implications. This enhances the quality of the financial reporting by ensuring that users are aware of the shift in reporting entity and how it affects the comparisons of financial results across periods.

Understanding that the other options do not align with the required accounting treatment for a change in reporting entity reinforces the importance of adhering to the proper retrospective application mandated by accounting standards.