1a ) Discuss the objectives of segmental information and the requirements for the disclosure of segmental information in annual reports
Segment reporting under IFRS 8, requires businesses to disclose financial information of key segments operating within an organisation.
One of the sole objectives relates to allowing a broad understanding of a company’s performance, through disclosing accurate details for segment operations. This allows stakeholders an apprehension of profit/loss making segments, to inform decision making accordingly.
Additionally, ‘different segments will have different profit potentials and growth opportunities’ (Nobes and Parker, 2016), whereby information provided should be sufficient to determine the future prospects of an entity’s operations. Similarly, ‘research undertaken in the UK and USA, indicated that segmental information improves the ability of shareholders to predict an entity’s future profit’ (Davies, 1997).
However, disclosures may appeal more meaningful to some investors. Financial analysts can apprehend a wider understanding of a segments revenues, expenses or liabilities. This allows ratios to be calculated on segments, to aid better investment decisions and comparisons between them.
The requirements for segmental information disclosures are set based on certain regulatory requirements of IFRS 8. ‘The identification of operating segments relates to rational judgments (based on IFRS 8 Standards) of the Chief Operating Decision maker (CODM) to report an operating segment’ (Danbolt, 2015) The CODM is essential to such a process, where they must identify reportable segments, through quantitative threshold tests under IFRS 8 disclosure requirements (Table 1).
