IFRS 8

Definition

IFRS 8 is an international financial reporting standard that focuses on the operating segments of a company, requiring disclosures about those segments to enhance transparency and provide stakeholders with relevant information. This standard emphasizes the way management views and evaluates the performance of different segments, aligning financial reporting with internal management practices, which helps users understand the company's financial performance based on the segments it operates in.

5 Must Know Facts For Your Next Test

1. IFRS 8 requires companies to disclose segment information based on internal management reports rather than solely on the financial statements.
2. The standard applies to all entities that prepare financial statements in compliance with International Financial Reporting Standards, including public companies.
3. Segment performance is evaluated based on profit or loss, which reflects how management makes decisions about allocating resources to segments.
4. Entities must identify reportable segments if they meet specific quantitative thresholds defined in IFRS 8, ensuring that significant segments are highlighted.
5. Changes in accounting estimates or changes in how management reviews segment performance can lead to restatements of segment disclosures under IFRS 8.

Review Questions

• How does IFRS 8 change the way companies report their operating segments compared to previous standards?
  • IFRS 8 shifts the focus from a rules-based approach to a management approach for reporting operating segments. Under previous standards, segment reporting was often based on product lines or geographical areas without considering internal management perspectives. IFRS 8 allows companies to disclose segments based on how management organizes and evaluates performance, leading to more relevant information for stakeholders.
• Discuss the significance of the management approach under IFRS 8 and its impact on segment disclosures.
  • The management approach under IFRS 8 is significant because it aligns external financial reporting with internal decision-making processes. This approach allows companies to present segment information that reflects how they assess performance and allocate resources. Consequently, this alignment enhances transparency and provides investors and stakeholders with a clearer understanding of the company's operational dynamics and profitability across different segments.
• Evaluate the implications of changes in accounting estimates on segment disclosures under IFRS 8, particularly in relation to reportable segments.
  • Changes in accounting estimates can significantly affect segment disclosures under IFRS 8 by potentially altering how reportable segments are identified and presented. If management changes its evaluation criteria or the underlying assumptions that influence performance metrics, it may lead to restated financial results for those segments. This not only impacts investor perceptions but also raises questions about the consistency and comparability of financial statements over time, making it crucial for companies to communicate these changes transparently to stakeholders.

Related terms

Operating Segment: A component of a business that engages in business activities and earns revenues and expenses, for which discrete financial information is available.

Segment Disclosure: The information provided in financial statements regarding the financial performance and position of a company’s operating segments, as required by IFRS 8.

Management Approach: A reporting perspective that focuses on how management organizes and evaluates performance, driving the presentation of segment information under IFRS 8.