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Segment Reporting under IFRS 8

Reporting practice and economic consequences

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Martin Nienhaus

The adoption of IFRS 8 marked a major change in the segment reporting rules under IFRS. This step, however, was heavily criticized and several questions regarding IFRS 8 still remain unanswered. Therefore, this study analyzes the impact of IFRS 8 on segment reporting practice and its economic consequences. The results show that firms report on average more segment information. Moreover, segment reports from the management’s perspective are useful and mitigate information asymmetries, reduce the cost of capital and affect the work of financial analysts. The findings have implications for the IASB, preparers, auditors and users of financial statements as well as enforcement institutions.
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7. Conclusions

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7Conclusions

This study investigates the impact of introducing IFRS 8 for segment reporting practice and the respective economic consequences for capital market participants. Based on the previous empirical analyses, this chapter summarizes the main findings and discusses implications and the contribution of the results. Finally, limitations are considered and avenues for potential future research are presented.

7.1Main findings and implications

Segment reporting has been a contentious and important topic in accounting practice and research ever since its first introduction in 1969. The latest major change in segment reporting regulation was the introduction of IFRS 8 and thereby the adoption of the management approach. On the one hand, this brought about convergence between IFRS and US-GAAP. On the other hand, it was heavily criticized and discussed due to turning away from a “full financial accounting approach” (Ulbrich (2006), pp. 21-22) to a system that allows internally used non-GAAP numbers to be disclosed in the segment report, although they may not comply with IFRS. Concerns were voiced by two members of the IASB and by the European Union. The latter feared that IFRS 8 would “import into EU law an alien standard [SFAS No. 131] without having conducted any impact assessment” (European Parliament (2007a), Section B5). Furthermore, companies were also concerned about the disclosure of proprietary information due to the adoption of IFRS 8. Some investors and in particular financial analysts, however, regarded the opportunity to the see the companies “through the management’s eyes” (Martin (1997)...

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