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Entity wide disclosures IFRS standards 8

Entity wide disclosures IFRS standards 8

Entity wide disclosures IFRS standards 8: IFRS 8 Operating Segments requires particular classes of entities (essentially those with publicly traded securities) to disclose information about their operating segments, products and services, the geographical areas in which they operate, and their major customers. Information is based on internal management reports, both in the identification of operating segments and measurement of disclosed segment information.

IFRS 8 was issued in November 2006 and applies to annual periods beginning on or after 1 January 2009.
Our commentary and analysis of the Standard is divided into four sections:

• Section 1: Provides an analysis of the key differences between the requirements of IFRS 8 and the standard it will replace, IAS 14 Segment Reporting.

• Section 2: Explains how to identify reportable operating segments, using flowcharts to highlight the decisions that need to be made. It also contains a number of examples to illustrate what is intended by the Standard.

• Section 3: Provides an illustration of the disclosures required by IFRS 8, with commentary highlighting when the disclosures may differ from those required by IAS 14.

• Section 4: Answers some frequently asked questions (FAQs) about the application of IFRS 8. IFRS 8 differs from its predecessor because it introduces a management reporting approach to identifying and measuring the results of reportable operating segments. As the measurement of the segment results reported is no longer dictated by the measurement and recognition criteria of financial reporting standards, reconciliations are required where information being presented to management differs from IFRS information in the primary financial statements.

Some entities may need to develop new processes in order to address these reconciliation requirements. As entities manage their businesses in different ways, segment reporting disclosures made by similar-sized entities in similar industries are unlikely to be directly comparable. Our publication, Observations on the Implementation of IFRS, indicated that there was diversity in the way entities reported their segments using IAS 14. Disclosures may be even less comparable when IFRS 8 comes into effect. The disclosure requirements in IFRS 8 are extensive, and we encourage all entities to study the Standard carefully well ahead of its adoption.

Material Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor. Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:

  1. was available when financial statements for those periods were authorised for issue
  2. could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.

Entity wide disclosures IFRS standards 8

Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud. Retrospective application is applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied. Retrospective restatement is correcting the recognition, measurement and disclosure of amounts of elements of financial statements as if a prior period error had never occurred. Impracticable Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so.

For a particular prior period, it is impracticable to apply a change in an accounting policy retrospectively or to make a retrospective restatement to correct an error if

(a)the effects of the retrospective application or retrospective restatement are not determinable

(b) the retrospective application or retrospective restatement requires assumptions about what management’s intent would have been in that period; or

(c) the retrospective application or retrospective restatement requires significant estimates of amounts and it is impossible to distinguish objectively information about those estimates that:

(i) provides evidence of circumstances that existed on the date(s) as at which those amounts are to be recognised, measured or disclosed.

(ii) would have been available when the financial statements for that prior period were authorised for issue from other information. Prospective application of a change in accounting policy and of recognising the effect of a change in an accounting estimate, respectively, are:

(a) applying the new accounting policy to transactions, other events and conditions occurring after the date as at which the policy is changed; and

(b) recognising the effect of the change in the accounting estimate in the current and future periods affected by the change.

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