Reportedly observed setting (5)
I believe the answer is:
scene
'setting' is the definition.
(I know that setting can be written as scene)
'reportedly observed' is the wordplay.
'reportedly' indicates a 'sounds like' (homophone) clue.
'observed' becomes 'seen' (synonyms).
'seen' sounds like 'SCENE'.
(Other definitions for scene that I've seen before include "Where things happen" , "View, landscape" , "Locality; embarrassing emotional display" , "Part of a 16" , "Pleasant view or public quarrel" .)