Join Your Exam WhatsApp group to get regular news, updates & study materials HOW TO JOIN

IFRS Definitions of industry and geographical segments

IFRS Definitions of industry and geographical segments

IFRS Definitions of industry and geographical segments : The requirements of SFAS 131 are based on the way that management regards an entity, focusing on information about the components of the business that management uses to make decisions about operating matters. In contrast, IAS 14 requires the dis aggregation of the entity’s financial statements into segments based on related products and services, and on geographical areas.

The requirements of SFAS 14 Financial Reporting for Segments of a Business Enterprise, the predecessor to SFAS 131, were similar to those of IAS 14. In particular, both standards required the accounting policies underlying the disaggregated information to be the same as those underlying the entity information, since
segment information was regarded as a disaggregation of the entity information. The approach to segment disclosures in SFAS 14 was criticised for not providing information about segments based on the structure of an entity’s internal organisation that could enhance a user’s ability to predict actions or reactions of management that could significantly affect the entity’s future cash flow prospects.

IFRS Definitions of industry and geographical segments : Most of the academic research findings on segment reporting indicated that application of SFAS 131 resulted in more useful information than its predecessor, SFAS 14. According to the research, the management approach of SFAS 131:
(a) increased the number of reported segments and provided more information;

(b) enabled users to see an entity through the eyes of management;
(c) enabled an entity to provide timely segment information for external interim reporting with relatively low incremental cost;
(d) enhanced consistency with the management discussion and analysis or other annual report disclosures;
(e) provided various measures of segment performance.

The Board discussed segment reporting at several meetings with users of financial statements. Most of the users supported the management approach of SFAS 131 for the reasons mentioned in the previous paragraph. In particular, they supported an approach that would enable more segment information to be
provided in interim financial reports.

Consequently the Board decided to adopt the US approach and published its proposals as an exposure draft in ED 8 Operating Segments in January 2006. The deadline for comments was 19 May 2006. The Board received 182 comment letters. After reviewing the responses, the Board issued IFRS 8 in November 2006.

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.

IFRS Definitions of industry and geographical segments Disclosure: 

Core principle—An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates. This IFRS shall apply to:

(a) the separate or individual financial statements of an entity:

(i) whose debt or equity instruments are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets).

(ii) that files, or is in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market.

(b) the consolidated financial statements of a group with a parent:

(i) whose debt or equity instruments are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets).

(ii) that files, or is in the process of filing, the consolidated financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market.

The IFRS specifies how an entity should report information about its operating segments in annual financial statements and, as a consequential amendment to IAS 34 Interim Financial Reporting, requires an entity to report selected information about its operating segments in interim financial reports.

It also sets out requirements for related disclosures about products and services, geographical areas and major customers. The IFRS requires an entity to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria.

Operating segments are components of an entity about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, financial information is required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments. The IFRS requires an entity to report a measure of operating segment profit or loss and of segment assets.

IFRS Definitions of industry and geographical segments Disclosure

It also requires an entity to report a measure of segment liabilities and particular income and expense items if such measures are regularly provided to the chief operating decision maker. It requires reconciliations of total report able segment revenues, total profit or loss, total assets, liabilities and other amounts disclosed for report able segments to corresponding amounts in the entity’s financial statements.

The IFRS requires an entity to report information about the revenues derived from its products or services (or groups of similar products and services), about the countries in which it earns revenues and holds assets, and about major customers, regardless of whether that information is used by management in making operating decisions. However, the IFRS does not require an entity to report information that is not prepared for internal use if the necessary information is not available and the cost to develop it would be excessive.

IFRS Definitions of industry and geographical segments Disclosure

The IFRS also requires an entity to give descriptive information about the way the operating segments were determined, the products and services provided by the segments, differences between the measurements used in reporting segment information and those used in the entity’s financial statements, and changes in the measurement of segment amounts from period to period.

IFRS Definitions of industry and geographical segments Disclosure

Cakart.in provides India’s top IFRS faculty video classes – online & in Pen Drive/ DVD – at very cost effective rates. Get IFRS Video classes from www.cakart.in  to do a great preparation for primary Student.

Watch IFRS sample video lectures visit www.cakart.in
Watch  IFRS  sample lecture books   visit www.cakart.in
Watch IFRS free downloads   visit www.cakart.in

Leave a comment

Your email address will not be published. Required fields are marked *