Reporting practice and economic consequences
2. Conceptual basis
2.1Segment reporting in financial accounting
This section presents the role of segment reporting in financial accounting by describing its purposes and users. Furthermore, the benefits and costs associated with segment reporting as well as its general concepts are described. Finally, this section details on the management approach in IFRS in general and its use for segment reporting in particular. This allows to get a general understanding of the role segment reporting in financial accounting which helps to better understand the potential consequences of the introduction of IFRS 8.
2.1.1Objectives and users of segment reporting
Segment reporting is the disaggregation of financial information of an entity’s business operations by business lines, geographical areas or major customers. In financial accounting, segment reporting is one instrument among others of general purpose financial reporting. Due to its disaggregated nature, however, it can be particularly useful for fundamental valuation analysis (Alvarez (2003), p. 7).
The objectives of segment reporting are derived from the objectives of general purpose financial reporting. Following the IFRS Conceptual Framework, the objective of IFRS
“…is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity. Those decisions involve buying, selling or holding equity and debt instruments, and providing or settling loans and other forms of credit.”
(IFRS Conceptual Framework.OB2)
Hence, the primary users to...
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