University Financial Accounting Report on Segment Reporting

This report provides a comprehensive overview of segment reporting in financial accounting, emphasizing its significance for companies in financial reporting. It highlights the advantages of segment reporting, such as providing insights into the financial performance of various operating segments, aiding in informed decision-making, and enhancing management accountability. The report also acknowledges the disadvantages, including increased costs, potential disclosure of sensitive information to competitors, and the risk of attracting unwanted attention from regulatory bodies. The report delves into the relevant accounting standard, AASB 8, which guides segment reporting in Australia, focusing on the management approach and the identification of operating and reportable segments. It further discusses the quantitative thresholds for disclosing operating segments, aggregation rules, and the requirements for measuring segment items and reconciling information. The report concludes by addressing non-financial disclosures and other crucial aspects to consider, such as the implications of segment growth or reduction, and the need for separate reporting of financial data for various segments. This report is a student contribution to Desklib, a platform offering AI-based study tools.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student
Name of the University
Author’s Note

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Summary
Segment reporting is considered as a crucial aspect for the companies in the process
of financial reporting. The main aim of segment reporting is to provide information about the
financial performance and financial position of the various operating segments of the
companies. The users of the financial statements can obtain the useful additional information
of the consolidated financial statements where data aggregation is seen. It needs to be
mentioned that there are certain advantage and disadvantages of segment reporting. Segment
reporting is considered as beneficial for the reporting entities having involvements in
different activities in different places. This helps in emphasising on the financial performance
of different parts of a business entity. It helps the users in more informed decision-making
process regarding future profitability and risk exposure. It increases the accountability of the
management (Kang & Gray, 2013). It needs to be mentioned that the users of the financial
statements become able in making more informed future profitability related prediction
through the delivery of more refined data with the help of segment reporting. Since, different
operating segments of the companies are subject to different kinds of risks, the investors
become able in gaining knowledge on different risk factors of these operating segments. This
is majorly helpful for the investors to make decisions related to the allocation of economic
resources of the firms (Franzen & Weißenberger, 2015).
However, there are certain disadvantages of segment reporting. Segment reporting
imposes certain additional costs on the companies. It opens the financial information of the
segments to the competitors. It increases the risk of bids for takeover in case segments of a
company are running in loses. Disclosure of additional data and information through segment
reporting might work as an encouragement for the new business entrants in the industry
(Nichols, Street & Tarca, 2013). In many cases, the disclosed data of operating segment that
shows different rate of profit internationally may lead to the attention of the host government
and the attention of the fiscal agencies can be attracted from the inter-segment sales. At the
same time, it needs to be mentioned that the segment data can lead to political attention from
different interest groups like employee, environmental groups and others (Armitage, Webb &
Glynn, 2016).
AASB 8 Operating Segment is considered as the relevant accounting standards for
segment reporting in Australia which is principle based (aasb.gov.au, 2019). AASB 8 states
that it is needed for an entity to disclose the information for enabling the users in evaluating

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the financial performance of the companies and its segments. Management approach is a
crucial aspect in segment reporting which helps in improving financial reporting since it
helps the users in reviewing the financial information of the firms from management’s
perspectives. According to AASB 8, an operating segment can be considered as an entity’s
element which involves in business activities for earning revenue and incurring expense and
the chief operating decision-maker of the regularly review the operating results of these
elements (Bugeja, Czernkowski & Moran, 2015). As per the requirement of AASB 8, it is
needed to identify the operating segments based on the internal reports that the chief
decision-maker of a firm regularly reviews for the effective allocation of resources to the
segment so that performance can be assessed. AASB 8 also states that ‘chief operating
decision maker’ is considered as a function that is responsible for resource allocation and
performance assessment of the operating segments. Chief Executive Officer and Chief
Operating Officer is often considered as the chief operating decision-makers (aasb.gov.au,
2019).
According to AASB 8 puts the obligation on the companies not to consider all parts of
an entity as operating segments due to the fact that they may nor earn revenue and incur
expenses such as headquarters. A reportable segment is an operating segment that satisfies
the provided criteria of AASB 8 and its information is disclosed in accordance with the
standards of AASB 8 (aasb.gov.au, 2019). Same long-term financial performance can be seen
in operating segments and thus AASB 8 provides the rule to aggregate two or more operating
segments into a single operating segment while adhering to the core principles of segment
reporting. The quantitative threshold to disclose operating segment is a crucial matter. As per
AASB 8, for the separate reporting of information of an operating segment, one of the three
quantitative threshold needs to be met. They are the reported revenue is 10% or more than the
whole revenue, the reported profit’s absolute amount is 10% or more of the greater the
combines profit or combined loss and the assets are 10% or more of the whole assets. These
thresholds need to be met for considering a segment as reportable operating segment (Leung
& Verriest, 2015).
According to AASB 8, Paragraph 14, in case the operating segments have same
economic characteristics while sharing most of the aggregation criteria mentioned under
Paragraph 12, an entity may combine the operating segment information that do not satisfy
the quantitative threshold for reportable operating segment. The requirement of AASB 8
states that a certain part of the total revenue of an entity needs to be attributed towards the

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operating segment. It is needed for the entity to identify additional operating segment as
reportable segment in case the total revenue reported by the segments is not more than 75%
of the total revenue of the entity (Birt, Joshi & Kend, 2017). Thus, the requirement of AASB
8, Paragraph 16 is that an entity needs to combine and disclose information about the
business activities and operating segments that are not reportable. The growth or reduction of
operating segment has implication on the identification of reportable operating segments. As
per AASB 8, Paragraph 17, it is needed to continue reporting the information of an entity
separately which is growing in a significant manner. As per AASB 8, Paragraph 18, in case
an operating segment is recognized as a reportable segment in line with the quantitative
threshold, it is needed to restate the segment data (aasb.gov.au, 2019).
In the process of segment reporting, the appropriate measurement of segment items is
considered as an essential aspect and the detailed guidelines on the measurement of different
segment items like segment revenue, segment profit, segment assets and segment liabilities
can be obtained from AASB 114. According to the requirement of AASB 8, the reported
amount for every operating segment to be the reported measure to the chief operating
decision-maker in order to allocate the resources to the segments and performance
assessment. As per the requirement of AASB 114, it is needed to prepare the segment
information in accordance with the adopted accounting policies for the preparation and
presentation of the external financial statements (legislation.gov.au, 2019). The detailed
definitions of the segment items can be seen in AASB 114. Another major requirement of
AASB 8 is to produce the reconcile information which is the total revenue of reportable
segment, total profit or loss, total assets, total liabilities and other amounts. There are certain
non-financial disclosure that need to be ensured as per AASB 8; they are about products or
services, the regions or countries where revenues are earned and assets are held and key
customers of the segments (Brown, P. J., Matolcsy & Wells, 2014).
There are some other aspects that need to be considered in this case. In the presence
of sufficient segment information, it is not easy to discuss of the poor business decisions.
Even in the presence of adequate segment data through segment reporting, high aggregation
can be seen in the provided information and it makes it tough for understanding on how the
competitors can be become advantageous from the provided information. It is required to be
mentioned that the parties are not able in gaining information about the actual implemented
business practice from the provide data from segment reporting. Thus, in order to get the

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extra advantage, it is needed for the competitors to access further private information of the
segments of the companies. These are crucial aspects to consider (Tan et al., 2016).
It is noteworthy to mention the fact that in case the chief operating decision maker of
an entity undertakes reviewing certain components of an entity in order to allocate the
resources and to assess the performance, it will be required to consider these components for
the purpose of reporting the entity’s operating segment. For this reason, the presence of four
operating segments can be seen; they are mining and food, timber and steel, clothing, travel
and agriculture and food and beverages. As per the regulation of segment reporting, it is
needed to disclose the information of these four segments separately under the appropriate
section. Information that are needed to be presented differently in the reporting segment are
sales, profit, net profit, assets, liabilities and other aspects associated with these items. Thus,
it can be seen from the above discussion that the managements of the companies are required
to undertake the separate reporting of financial data and information of the reporting
segments of an entity (Handley, Wright & Evans, 2018).

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References
AASB 114 - Segment Reporting - July 2004. (2019). Legislation.gov.au. Retrieved 8 June
2019, from https://www.legislation.gov.au/Details/F2014C00622
Aasb.gov.au. (2019). Operating Segments. Retrieved 8 June 2019, from
https://www.aasb.gov.au/admin/file/content105/c9/AASB8_08-15_COMPnov15_01-
16.pdf
Armitage, H. M., Webb, A., & Glynn, J. (2016). The use of management accounting
techniques by small and medium‐sized enterprises: a field study of Canadian and
Australian practice. Accounting Perspectives, 15(1), 31-69.
Birt, J., Joshi, M., & Kend, M. (2017). Segment reporting in a developing economy: the
Indian banking sector. Asian Review of Accounting, 25(1), 127-147.
Brown, P. J., Matolcsy, Z., & Wells, P. (2014). Group versus individual compensation
schemes for senior executives and firm performance: Some evidence based on
archival data. Journal of Contemporary Accounting & Economics, 10(2), 100-114.
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.
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.
Handley, K., Wright, S., & Evans, E. (2018). SME Reporting in Australia: Where to Now for
Decision‐usefulness?. Australian Accounting Review, 28(2), 251-265.
Kang, H., & Gray, S. J. (2013). Segment reporting practices in Australia: has IFRS 8 made a
difference?. Australian Accounting Review, 23(3), 232-243.
Leung, E., & Verriest, A. (2015). The impact of IFRS 8 on geographical segment
information. Journal of Business Finance & Accounting, 42(3-4), 273-309.
Nichols, N. B., Street, D. L., & Tarca, A. (2013). The impact of segment reporting under the
IFRS 8 and SFAS 131 management approach: A research review. Journal of
International Financial Management & Accounting, 24(3), 261-312.

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Tan, A., Chatterjee, B., Wise, V., & Hossain, M. (2016). An investigation into the potential
adoption of International Financial Reporting Standards in the United States:
implications and implementation. Australian Accounting Review, 26(1), 45-65.