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IFRS The period to provide the interim financial statements

IFRS The period to provide the interim financial statements

IFRS The period to provide the interim financial statements: Interim financial statements for a corporation are the financial statements covering a period of less than one year. Often interim financial statements are issued for the quarters between the annual financial statements. The purpose is to give investors and other users updated information on the corporation’s operations. Unlike the annual financial statements, the interim financial statements are usually un-audited and condensed. Therefore, it is wise to also read the previously issued and complete annual financial statements and reports.

In order for the interim income statement amounts to add up to the amounts reported in the official income statement for the year, it is necessary that the accounting practices in the interim financial statements be consistent with the accounting practices that will be followed in the annual financial statements.

More about IFRS The period to provide the interim financial statements

IFRS The period to provide the interim financial statements : the Board decided to add a short-term convergence project to its active agenda. The project is being conducted jointly with the United States standard-setter, the Financial Accounting Standards Board (FASB). The objective of the project is to reduce differences between IFRSs and US generally accepted accounting principles (US GAAP) that are capable of resolution in a relatively short time and can be addressed outside major projects.

As part of the project, the Board identified differences between IAS 14 Segment Reporting and the US standard SFAS 131 Disclosures about Segments of an Enterprise and Related Information, reviewed academic research findings on segment reporting, in particular relating to the implementation of SFAS 131, and had meetings with users of financial statements.

IFRS The period to provide the interim financial statements

IFRS The period to provide the interim financial statements : 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 disaggregation 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 dis-aggregation 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 The period to provide the interim financial statements

IFRS The period to provide the interim financial statements : 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.
(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 The period to provide the interim financial statements

IFRS The period to provide the interim financial statements : 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.

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.

The Board concluded that the advantages of the management approach, in particular the ability of entities to prepare segment information on a sufficiently timely basis for inclusion in interim financial reports, outweighed any disadvantages arising from the potential for segments to be reported in accordance with non-IFRS accounting policies.

Given the Board’s support for the principles of the management approach required by SFAS 131 and the objectives of the short-term convergence project, the Board decided that the simplest and most complete way to achieve convergence would be to use the text of SFAS 131 for the IFRS.

The FASB’s thinking behind the management approach of SFAS 131 is presented in its Background Information and Basis for Conclusions. Because the Board has adopted that approach, the FASB’s Background Information and Basis for Conclusions are reproduced in Appendix A to this Basis for Conclusions.

IFRS The period to provide the interim financial statements

IFRS The period to provide the interim financial statements : 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 interest 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 The period to provide the interim financial statements

IFRS The period to provide the interim financial statements : 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 The period to provide the interim financial statements

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