Sustainability and Segmental Reporting: A Case of Sembcorp Industries Limited

This report evaluates the financial reporting requirements of Sembcorp Industries Limited, focusing on sustainability reporting and segmentation reporting. It discusses the organization's sustainability initiatives and the profitability of its operating segments.

Student ID: UP916241
Module Code: P22997
Module Title: Advanced Financial Accounting (AFA)
Lecturer: Ms Yeo Ai Ling
1

Sustainability and Segmental Reporting: A Case of
Sembcorp Industries Limited
Introduction
There are various rules and regulations applicable to business organizations operating all
across the globe. These rules and regulations are applied by the governing authorities in order
to make sure that financial statements are prepared in such a manner that true and fair value
of the business can be represented. The main objective of the financial reporting standards is
to make sure that investors are able to understand the financial data provided in financial
reports so that they can make their investment decisions. This report will be focused on
evaluating the financial reporting requirements in relation to a business organization listed on
the Singapore Stock Exchange (Wahlen, Baginski & Bradshaw, 2014). Organization under
consideration is Sembcorp Industries Limited. Sembcorp Industries Limited is a business
organization operating in the energy and water supply industry of Singapore. The primary
business of this organization is to provide electricity and water resources to industries
operating in Singapore. This organization is also providing wastewater treatment plant for
large scale organizations operating in the chemical industry. This organization is also
operating in Vietnam China United Kingdom and different countries in the Middle East.
Reporting requirement in relation to this organization will be focused on sustainability
reporting and segmentation reporting. As it is already discussed that management of the
organization is providing a different kind of services to industries and manufacturing units,
therefore it is important that profitability is evaluated by the organization from each and
every service. Segmentation reporting will help in evaluating profitability from different
business activities of the organization (Frias‐Aceituno, Rodríguez‐Ariza & Garcia‐Sánchez,
2014). Both of these reporting requirements will be evaluated from the financial statements
prepared at the end of the year 2018.
Sustainability reporting
Sustainability reporting is concerned with the organization report on a different kind of
information such as economic, environmental, and social and governance. On an overall
evaluation, it can be said that the sustainability report helps in identifying the external
environment in which the organization is operating. This also helps in evaluating the
2

governance policies and procedures used by the organization in order to execute their
functions. First of all, it is very important to understand as reporting requirements provided in
the Global reporting initiative.
Environmental reporting
Global reporting initiative is an independent standard making an organization that helps
business organizations to communicate the impact that their business operations have on
society and business environment. According to this organization, every business
organization has to issue a sustainability report or corporate social responsibility report for
communicating the impact that business organization has on environment and society
(Ehnert, Parsa, Roper, Wagner & Muller-Camen, 2016). This report will include the actions
taken by management in order to reduce the carbon footprint of the organization on the
environment. In addition to that this report will also include all the activities undertaken by
the organization for the development of society.
Following are the highlights of sustainability report made by Sembcorp Industries Limited for
the year ending 2018-
Management of Sembcorp Industries Limited has provided detailed information in relation to
sustainability reporting in the year 2018. Key drivers of energy transition and reasons for
Climate Change identified on the official website of the company. According to the official
website, Sembcorp Industries Limited is the first Organization in Singapore that has
established a climate change strategy. The main objective of this climate change strategies to
reduce the carbon footprint on the environment and society (Ioannou & Serafeim, 2017).
Management of the company has also disclosed that the sustainability report is prepared by
the organization following the standards of GRI i.e. global reporting initiative. Factors in
relation to environment social and governance are described separately by the management as
per the requirement of GRI.
Stakeholder management
Management of the organization has included sustainability report for the year ending 2018
in the annual report prepared by the organization. All the activities in relation to sustainability
management in the organization have been divided into three major categories i.e. enabling
the low carbon and circular economy, embedding responsible business practices and
empowering people and community. Enabling a low carbon and circular economy activities
3

are focused on effective and efficient to use of resources in order to decrease the negative
impact of resource utilization on the environment. Local environmental protection rules and
regulations have been developed in order to maintain high standards of environmental
management (Cheng, Ioannou & Serafeim, 2014).
Empowering our people and community is focused on human resources employed by the
organization and people that are living in society. Management has established health and
safety rules and regulations in order to make sure that employees feel safe at the workplace.
The contribution made by business organization for social development is also described in
this category. Embedding responsible business practices are focused on corporate governance
of the organization. The main purpose of these activities to conduct risk identification
practices in order to identify factors that can have a negative impact on the environment and
Society (Sierra‐García, Zorio‐Grima & García‐Benau, 2015).
Governance
Board of directors has established a sustainability steering committee that helps in identifying
the activities undertaken by the business organization in all the three above-mentioned
categories of sustainability activities. This steering committee is directly reportable to the
board of directors. Various goals and objective have been prepared by the organization in
order to make sure that business activities are sustainable. For example, in the year 2017
management to has established a goal of doubling the renewable energy generation capacity
by the year 2022 as compared to the year 2017. These type of goals and regulations help of
business organization to provide the direction to sustainability activities (Amran, Lee & Devi,
2014).
On an overall evaluation, it can be said that the management has followed the framework
issued by the global reporting initiative organization in order to make stakeholders aware of
the sustainable development in a particular business organization.
4

Segmental reporting
Reporting requirements in relation to the operating segment are also very essential from the
perspective of management as well as external stakeholders. True and fair profitability from
each and every product or service offered by the organization can be identified with the help
of segmentation reporting. The main purpose of segmentation reporting is to ensure that
stakeholders are able to analyse the profitability generated from each and every product and
service of the organization (Aleksanyan & Danbolt, 2015). International accounting standard
board has developed the IFRS 8 i.e. operating segments to ensure that business organizations
are able to disclose profitability generated from each and every statement separately.
According to the principles of this standard, each and every business activity that generates
revenue for the organization and can be considered as a cost unitary should be categorized as
an operating segment. Operating results from these operating segments are required to be
disclosed separately in segmentation reporting.
The international standard is applicable on all business organization that is publicly traded on
the stock exchange. SembCorp Industries Limited has been listed on the stock exchange of
Singapore, therefore, it can be said that this International financial reporting standards will be
applicable to business operations (Franzen & Weißenberger, 2015). As discussed earlier
management of SembCorp Industries Limited has been providing different services to
industrial manufacturing units established in Singapore. After analysing the financial
statement prepared by the organization operational segmentation divided by management can
be easily identified.
Identification of segments
In the financial statements ending 2018 management of the company has it was closed all the
operating segments in segmentation reporting according to the principles of IFRS 8.
According to the summary of significant accounting policies, any business activity that might
result in the generation of revenue for the organization are considered as operating segments.
Operating results of such operating segments are disclosed separately by the management and
these are reviewed by the group's president and chief executive officer (Farías & Rodríguez,
2015). The main objective of a President and chief executive officer is to make decisions in
5

relation to resource allocation and dissolution of a particular business activity according to
the profits generated from them.
Reportable segments
According to the analysis undertaken by the chief executive officer and there are four
reportable operating segments in the organization. These reportable segments are as follows-
 The principal activity of providing energy and water supply to different organizations.
 Providing integrated solutions for Offshore and Marine industry including repair and
maintenance.
 Urban Development segments focused on the development of commercial and
residential areas all across Asia including industrial parks.
 Other business activities are related to construction, designing, and engineering.
According to the management of the company, each and every business activity identified by
management is generating revenue for the organization, therefore in accordance with the
IFRS 8 business activities are required to be reported as operating segments (Kajüter &
Nienhaus, 2017).
Information disclosure
According to the segment reporting undertaken by the organization management of the
company has generated profits from Urban Development and primary business activities
segment. Total revenue generated with primary business activity segment is $312 million
where is the profit generated from Urban Development segment is $86 million. Management
has incurred a loss in both of the other segments i.e. marine segment and other income
segments. In the previous financial year, management had generated profit from each and
every of the four operating segments are identified by the organization. Total revenue
generated in the year 2018 in accordance with segment reporting was $383 billion which has
decreased to $347 million in the year 2018.
This type of segment reporting can be very helpful for the board of directors and chief
executive officer of the company to make decisions in relation to resource allocation (Bugeja,
Czernkowski & Moran, 2015). Board of directors can also evaluate whether continuing with
particular loss-making segment will be beneficial for the organization in the future or not.
6

Usefulness to users
All of the reporting Framework developed by any kind of governing authority is in the best
interest of the user of financial statement. The user of financial statement can be both internal
and external. Reporting requirements discussed in this report i.e. sustainability reporting and
operating segments are beneficial for internal as well as external stakeholders.
Usefulness to internal stakeholders- Internal stakeholders can also be considered and
management of the company (Robinson, Henry, Pirie & Broihahn, 2015). Reporting
requirements in relation to operating segments are very essential for a business organizations
internal department as they can make decisions in relation to resource allocation. If a
particular operating segment is giving more profit then it is very important to allocate more
resources to such operating segment. Decisions in relation to closing a particular operating
segment can also be taken by the internal department of through segment reporting. If a
particular operating segment is continuously losing money and does not add any value to
business operations, then management can take the decision to shut down such operating
segment.
Sustainability reporting requirements also very essential for internal stakeholders as they can
establish sustainable goals and objectives for the organization. These goals and objectives
will help in full utilization of available resources. The marketing department of a business
organization can also use sustainability report to promote the socially responsible image of
the organization as a marketing certificate (Cao, Chychyla & Stewart, 2015).
Usefulness to external stakeholders- Final uses of financial statement that are not involved in
the execution of business operations such as shareholders will be considered as external
stakeholders. Sustainability reporting will help external stakeholders to analyze whether the
operations of the organization are having a negative impact on the overall environment
(Easton & Sommers, 2018). Resources available in society belongs to all the people including
external stakeholders and it is important for them to make sure that business organizations are
using such resources with efficiency and effectiveness. Segment reporting can be very
beneficial to external stakeholders such as investors. If a particular segment is having a
significant negative impact on business operations than investors can force management to
shut down search operating segment by introducing such matter in annual general meeting.
7

Conclusion
On an overall evaluation at can be said that all the reporting requirements developed by
International and Domestic accounting authorities are designed for a specific purpose. This
report has identified reporting requirements in relation to operating segments and
sustainability reporting. These requirements are analysed from the perspective of SembCorp
Industries Limited. After analysing annual report of this organization it can be said that
management has followed all the rules and regulations prescribed by international accounting
standard through IFRS and global reporting initiative.
8

References
Aleksanyan, M., & Danbolt, J. (2015). Segment reporting: Is IFRS 8 really
better? Accounting in Europe, 12(1), 37-60.
Amran, A., Lee, S. P., & Devi, S. S. (2014). The influence of governance structure and
strategic corporate social responsibility toward sustainability reporting quality. Business
Strategy and the Environment, 23(4), 217-235.
Bugeja, M., Czernkowski, R., & Moran, D. (2015). The impact of the management approach
on segment reporting. Journal of Business Finance & Accounting, 42(3-4), 310-366.
Cao, M., Chychyla, R., & Stewart, T. (2015). Big Data analytics in financial statement
audits. Accounting Horizons, 29(2), 423-429.
Cheng, B., Ioannou, I., & Serafeim, G. (2014). Corporate social responsibility and access to
finance. Strategic management journal, 35(1), 1-23.
Easton, M., & Sommers, Z. (2018). Financial Statement Analysis & Valuation, 5e.
Ehnert, I., Parsa, S., Roper, I., Wagner, M., & Muller-Camen, M. (2016). Reporting on
sustainability and HRM: A comparative study of sustainability reporting practices by the
world's largest companies. The International Journal of Human Resource
Management, 27(1), 88-108.
Farías, P., & Rodríguez, R. (2015). Segment disclosures under IFRS 8’s management
approach: has segment reporting improved? Spanish Journal of Finance and
Accounting/Revista Espanola de Financiacion y Contabilidad, 44(2), 117-133.
Franzen, N., & Weißenberger, B. E. (2015). The adoption of IFRS 8–no headway made?
Evidence from segment reporting practices in Germany. Journal of Applied Accounting
Research, 16(1), 88-113.
Frias‐Aceituno, J. V., Rodríguez‐Ariza, L., & Garcia‐Sánchez, I. M. (2014). Explanatory
factors of integrated sustainability and financial reporting. Business strategy and the
environment, 23(1), 56-72.
Ioannou, I., & Serafeim, G. (2017). The consequences of mandatory corporate sustainability
reporting. Harvard Business School research working paper, (11-100).
9

Kajüter, P., & Nienhaus, M. (2017). The impact of IFRS 8 adoption on the usefulness of
segment reports. Abacus, 53(1), 28-58.
Robinson, T. R., Henry, E., Pirie, W. L., & Broihahn, M. A. (2015). International financial
statement analysis. John Wiley & Sons.
Sierra‐García, L., Zorio‐Grima, A., & García‐Benau, M. A. (2015). Stakeholder engagement,
corporate social responsibility and integrated reporting: An exploratory study. Corporate
Social Responsibility and Environmental Management, 22(5), 286-304.
Wahlen, J. M., Baginski, S. P., & Bradshaw, M. (2014). Financial reporting, financial
statement analysis and valuation. Nelson Education.
10