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BASIS FOR CONCLUSIONS ON IFRS 8 INTERIM FINANCIAL INFORMATION

BASIS FOR CONCLUSIONS ON IFRS 8 INTERIM FINANCIAL INFORMATION

BASIS FOR CONCLUSIONS ON IFRS 8 INTERIM FINANCIAL INFORMATION: The Board decided that the changes to IAS 34 Interim Financial Reporting proposed in ED 8 should be amended to clarify that interim disclosure of information on segment profit or loss items is required only if the specified amounts are included in the measure of segment profit or loss reviewed by the chief operating decision maker. The Board reached this conclusion because it noted that such disclosure is consistent with the management approach.

The International Financial Reporting Standards, usually called the IFRS Standards,are standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB) to provide a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. They are a consequence of growing international shareholding and trade and are particularly important for companies that have dealings in several countries. They are progressively replacing the many different national accounting standards. They are the rules to be followed by accountants to maintain books of accounts which are comparable, understandable, reliable and relevant as per the users internal or external. IFRS, with the exception of IAS 29 Financial Reporting in Hyperinflationary Economies and IFRIC 7 Applying the Restatement Approach under IAS 29, are authorized in terms of the historical cost paradigm. IAS 29 and IFRIC 7 are authorized in terms of the units of constant purchasing power paradigm.

IFRS began as an attempt to harmonize accounting across the European Union but the value of harmonization quickly made the concept attractive around the world. However, it has been debated whether or not de facto harmonization has occurred. Standards that were issued by IASC (the predecessor of IASB) are still within use today and go by the name International Accounting Standards (IAS), while standards issued by IASB are called IFRS. IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee (IASC). On 1 April 2001, the new International Accounting Standards Board (IASB) took over from the IASC the responsibility for setting International Accounting Standards. During its first meeting the new Board adopted existing IAS and Standing Interpretations Committee standards (SICs). The IASB has continued to develop standards calling the new standards “International Financial Reporting Standards”.

BASIS FOR CONCLUSIONS ON IFRS 8 INTERIM FINANCIAL INFORMATION

BASIS FOR CONCLUSIONS ON IFRS 8 INTERIM FINANCIAL INFORMATION :In ED 8, the Board proposed extending the scope of the IFRS to all entities that have public accountability rather than just entities whose securities are publicly traded. The Board noted that it was premature to adopt the proposed definition of public accountability that is being considered in a separate Board project on small and medium-sized entities (SMEs). However, the Board decided that the scope of the standard should be extended to include entities that hold assets in a fiduciary capacity for a broad group of outsiders. The Board concluded that the SMEs project is the most appropriate context in which to decide whether to

extend the scope of the requirements on segment reporting to other entities.

Some respondents to ED 8 commented that the scope of the IFRS should not be extended until the Board has reached a conclusion on the definitions of ‘fiduciary capacity’ and ‘public accountability’ in the SMEs project. They argued that the terms needed clarification and definition.

BASIS FOR CONCLUSIONS ON IFRS 8 INTERIM FINANCIAL INFORMATION

The Board accepted these concerns and decided that the IFRS should not apply to entities that hold assets in a fiduciary capacity. However, the Board decided that publicly accountable entities should be within the scope of the IFRS, and that a future amendment of the scope of the IFRS should be proposed to include publicly accountable entities once the definition has been properly developed in the SMEs project. The proposed amendment will therefore be exposed at the same time as the exposure draft of the proposed IFRS for SMEs.

A number of respondents to ED 8 suggested that the scope exemption of paragraph 6 of IAS 14 should be included in the IFRS. This paragraph provided an exemption from segment reporting in the separate financial statements of the parent when a financial report contains both consolidated financial statements and the parent’s separate financial statements. The Board agreed that on practical grounds such an exemption was appropriate.

BASIS FOR CONCLUSIONS ON IFRS 8 INTERIM FINANCIAL INFORMATION:

In ED 8 the Board proposed that if an entity not required to apply the IFRS chooses to disclose segment information in financial statements that comply with IFRSs, that entity would be required to comply with the requirements of the IFRS. Respondents commented that this was unnecessarily restrictive. For example, they observed that requiring full compliance with the IFRS would prevent an entity outside its scope from voluntarily disclosing sales information for segments without also disclosing segment profit or loss. The Board concluded that an entity should be able to provide segment information on a voluntary basis without triggering the need to comply fully with the IFRS, so long as the disclosure is not referred to as segment information.

A respondent to ED 8 asked for clarification on whether the scope of the proposed IFRS included the consolidated financial statements of a group whose parent has no listed financial instruments, but includes a listed minority interest1 or a subsidiary with listed debt. The Board decided that such consolidated financial statements should not be included in the scope and that the scope should be clarified accordingly. The Board also noted that the same clarification should be made to the scope of IAS 33 Earnings per Share.

BASIS FOR CONCLUSIONS ON IFRS 8 INTERIM FINANCIAL INFORMATION: In the Basis for Conclusions on ED 8, the Board noted that the primary benefits of adopting the management approach in SFAS 131 are that:

      (a) entities will report segments that correspond to internal management reports;
        (b) entities will report segment information that will be more consistent with other parts of their annual reports;
        (c) some entities will report more segments; and
                (d) entities will report more segment information in interim financial reports.

    In addition, the Board noted that the proposed IFRS would reduce the cost of providing disaggregated information for many entities because it uses segment information that is generated for management’s use.

    Most respondents to the Exposure Draft supported the adoption of the  management approach. They considered the management approach appropriate, and superior to the approach of IAS 14. These respondents observed that the management approach for segment reporting allows users to review an entity’s operations from the same perspective as management. They noted that although the IAS 14 approach would enhance comparability by requiring entities to report segment information that is consistent with IFRSs, the disclosures will not necessarily correspond to segment information that is reported to management and is used for making decisions.

    BASIS FOR CONCLUSIONS ON IFRS 8 ADOPTION OF MANAGEMENT APPROACH

    Yet other respondents agreed with the management approach for the identification of segment assets, but disagreed with the management approach
    for the measurement of the various segment disclosures. In particular, they doubted whether the publication of internally reported amounts would
    generate significant benefit for investors if those amounts differ from IFRS amounts.

    The Board noted that if IFRS amounts could be prepared reliably and on a timely basis for segments identified using the management approach, that approach would provide the most useful information. However, the Board observed that IFRS amounts for segments cannot always be prepared on a sufficiently timely basis for interim reporting.

    The Board also noted the requirements in the IFRS for an explanation of the measurements of segment profit or loss and segment assets and for reconciliations of the segment amounts to the amounts recognised in the entity’s financial statements. The Board was satisfied that users would be able to understand and judge appropriately the basis on which the segment amounts were determined.

    BASIS FOR CONCLUSIONS ON IFRS 8 INTERIM FINANCIAL INFORMATION

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