IASB Post-implementation review: IFRS 8 operating segments

Comments from ACCA to the International Accounting Standards Board, 5 November 2012.



ACCA’s comments on the “management perspective” approach of IFRS 8 are set out in our response to Question 2 below.  We support the use of this approach, although its effectiveness partly depends on the adequacy of the underlying definitions and concepts set out in the Standard. In this respect, we have expressed two reservations. ACCA also supports IFRS 8 in its current form, in so far as the Standard represents progress in the convergence between IFRS and US GAAP.

Our combined response to Questions 3 and 4 casts doubt on the extent to which financial statements actually reflect the changes which were needed to external reporting processes when adopting IFRS 8. Consequently, ACCA is questioning how far IFRS 8 has been adopted as intended. We also question whether this apparent inertia is an issue affecting financial reporting generally. 

Our combined response to Questions 5 and 6 is provided from our perspective as an accountancy body, representing and regulating our global membership as preparers, auditors and other users of financial statements. From this standpoint, we support Standards which result in disclosures that are transparent and can be effectively scrutinised.

The IASB’s PIR process

As this is the first PIR conducted by the IASB, ACCA believes that it may be helpful to give some general comments on the process so far.

ACCA supports the concept of a PIR process, although we note that it does not require the IASB to take action. Consequently, we would encourage the IASB to be prepared nonetheless to make major changes where these are found to have widespread support, notwithstanding that parties unhappy with the Standard will probably be more likely to respond than those which are content with it.

In terms of practicality, certain Standards, whilst meriting comment, or being subject to review under due process, may be of less importance to preparers and users of financial statements than are other current issues. In this event, it may be more effective for the IASB to adopt a more straightforward PIR process, for example by obtaining views in a single step from both “interested parties” (as described in the Request For Information) and generally. The IASB may also wish to consider that a limited number of “open” questions, rather than specific ones as below, will elicit answers which prove to be of more relevance to the intended broad scope of the PIR.

Furthermore, the questions below do not match the standpoint of certain categories of respondent, being directed primarily at investors (users) and preparers. External auditors and professional bodies will also be in a position to provide views, from their own perspectives.


We turn now to the specific questions raised by the IASB which, in the Request for Information (RFI), include guidance for investors and preparers. Our responses are principally from the perspective of our role as a global accountancy body, with input provided by the ACCA members of our Corporate Reporting Global Forum.

Q1: Are you comparing IFRS 8 with IAS 14 or with a different, earlier segment-reporting Standard that is specific to your jurisdiction? In providing this information, please tell us: (a) what your current job title is; (b) what your principal jurisdiction is; and (c) whether your jurisdiction or company is a recent adopter of IFRSs.

We are comparing IFRS 8 with IAS 14.

(a) As per the covering message above

(b) Global

(c) As a global accountancy body, ACCA has supported IFRS for many years.

Q2: What is your experience of the effect of the IASB’s decision to identify and report segments using the management perspective?

ACCA agrees that the current emphasis on management’s perspective can give certain advantages compared to the approach of IAS 14 Segment Reporting, which was based on line items in the IFRS financial statements. Where properly applied, IFRS 8 can provide relevant and useful additional information to investors, by applying the principle of reporting externally at the same level as the entity does internally.

We do however, have some reservations about the concepts and definitions adopted in the Standard. As part of ACCA’s response to the RFI, we believe that it would be relevant to reproduce the comment made our response to the IASB’s Exposure Draft of Annual Improvements (2010-2012), which is set out below:

ACCA continues to have a concern about whether the level of Chief Operating Decision Maker is the most suitable for the purposes of determining the disclosure in the financial statements. Potentially, this level may be very high within the reporting entity, thereby providing information which could be more helpful to external analysts than other users of the financial statements. The Post-implementation Review of IFRS 8 which is currently underway does not specifically raise this matter, but we hope that views will be expressed by respondents as part of the opportunity to provide additional comments on IFRS 8 during the Review.

We consider that there is too much scope for judgement in defining what the CODM comprises in a particular entity. The CODM should not mean the whole Board, as this includes Non-Executive Directors. It would be helpful for IFRS 8 to provide a definition which encourages the disclosure of relevant operational information.

A second reservation is ACCA’s concern that paragraph 12 of IFRS 8 provides insufficient detail about what constitutes “similar economic characteristics”, for the purposes of segment aggregation.

Q3: How has the use of non-IFRS measurements affected the reporting of operating segments?


Q4: How has the requirement to use internally-reported line items affected financial reporting?

The IASB comments in the RFI that corporate reporting practice has not actually changed a great deal since the replacement of IAS 14 by IFRS 8. ACCA shares this concern with respect to the financial statements (commonly termed the 'back end' of the Annual Report), whilst management commentary in the 'front end' of the Annual Report is more reflective of management’s current perspective, and indeed, its future plans. This has resulted in a certain amount of dis-similarity between the information provided in the 'front' and 'back' ends of the Annual Report.

There may be more than one cause of the above problem, and ACCA agrees that the PIR process needs to establish the main issue or issues, before being in a position to address these.

Firstly, management concerns over the disclosure of confidential information tend to affect the disclosures in the notes to the financial statements more than the sections which are based to a greater extent on narrative reporting.

There may also be a desire by preparers and users for year-to-year consistency in the content of the notes to the financial statements. Responses to the EFRAG Discussion Paper 'Towards a Disclosure Framework for the Notes' are likely to provide confirmation or otherwise that this desire for consistency is proving an issue generally, including for the operation of IFRS 8 in practice.

Q5: How have the disclosures required by IFRS 8 affected you in your role?


Q6: How were you affected by the implementation of IFRS 8?

There will be greater overall compliance with a Standard if its adoption in practice can be readily monitored by regulators. Due to its focus on internal reporting processes, IFRS 8 is considered to be relatively difficult to enforce by regulators. Compliance with the Standard may also be difficult to audit, given the infrequency of audit report modifications on account of segmental reporting. 

If other respondents to the RFI make similar comments to the above, these issues will need to be addressed, by considering the recommendations made by respondents (such as suggested enhancements to required explanatory disclosures). Appropriate action will also tackle the lack of investor trust referred to in the RFI.

Last updated: 12 Nov 2012