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IFRS Information about the format of the secondary

This publication provides information about the requirements of the newly issued IFRS Information about the format of the secondary Disclosure, which becomes effective for annual reporting periods beginning on or after 1 January 2009. It has been designed to help those responsible for preparing IFRS-based financial statements apply and understand the new requirements.

IFRS Information about the format of the secondary: 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 re-portable 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.

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• 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.

IFRS Information about the format of the secondary: IFRS Information about the format of the secondary 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:

Important Note – Preparing for IFRS?
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(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.

IFRS Information about the format of the secondaryMost 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 Information about the format of the secondary

IFRS Information about the format of the secondary : 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.

The IFRS requires the entity to explain the measurements of segment profit or loss and segment assets and liabilities and to provide reconciliations of the total segment amounts to the amounts recognised in the entity’s financial statements. The Board believes that such reconciliations will enable users to understand and judge the basis on which the segment amounts were determined. The Board also noted that to define the measurement of such amounts would be a departure from the requirements of SFAS 131 that would involve additional time and cost for entities and would be inconsistent with the management perspective on segment information.

IFRS Information about the format of the secondary

IFRS Information about the format of the secondary : The Board considered an approach whereby any material operating segment would be required to be disclosed separately. However, the Board was concerned that there might be uncertainty about the meaning of materiality in relation to disclosure. Furthermore, such a requirement would be a significant change from the wording of SFAS 131. Thus, the Board was concerned that the change would be from an easily understandable and familiar set of words that converges with SFAS 131 to a potentially confusing principle. Accordingly, the Board decided to retain the quantitative thresholds.

IFRS Information about the format of the secondary

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