Segment reporting: new standard effective 31 December 2009

For entities that operate in a variety of classes of business, geographical locations, regulatory or economic environments or markets, segmental information is an essential management tool.  It enables management to monitor performance, allocate resources and devise business and market strategies. 

There are a number of new standards effective for the first time from 31 December 2009.  One of those relates to segment reporting (AASB 8 Operating Segments) which may involve a reasonable amount of work by management to produce the revised disclosures. AASB 8 requires much of a business’ management information to be published externally so that investors, analysts and other users of entities’ financial statements can review an entity’s operations from the same perspective as management.

The good news for many entities is that AASB 8 has a narrower scope than the superseded standards AASB 114 Segment Reporting. Only listed companies and those in the process of listing will have to publish segment information in their financial report. These entities will be subject to a radically different approach to segment reporting from AASB 114 which has the potential to highlight sensitive information to competitors as well as other users of financial statements.

The core principle of AASB 8 requires an entity to 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 environment in which it operates.

What do I need to do?
Management need to understand the requirements of AASB 8 and think carefully about what the required disclosures say about the way they manage their business. There is no exemption from the disclosures on the grounds that management may consider the segment information sensitive or that its disclosure may cause ‘competitive harm’.

Is there any help available?
Grant Thornton have produced a guide which explains the AASB 8 (IFRS 8 – international equivalent) key implementation issues and includes interpretational guidance in certain problematic areas. Please click here to access this guide.

Your Grant Thornton contact will be able to assist you in working through the requirements of AASB 8 or you can contact our National Audit Support technical team at nas@grantthornton.com.au.  

Author: Carmen Ridley, September 2009

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