Lecture 11 - Lecture 11 Segments Other Required Disclosure...

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Lecture 11 Segments Other Required Disclosure
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Objectives of this lecture y Understand that consolidated financial statements provide an aggregated view of the financial performance and financial position of business operations from various industries and geographical locations y Understand that to avoid information loss the consolidated financial statements need to be supplemented by additional disclosures about the various operating segments in which the organisation operates
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Objectives (cont.) y Understand and apply the disclosure requirements of AASB 8 y Analyse the segment disclosures to provide information to enable a more informed assessment of the performance and associated risks of an organisation’s various activities y Understand how ‘operating segments’ are defined y To understand the concept of materiality y To be aware of other legislative requirements requiring disclosures
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Lecture references y Accounting Handbook y Standards AASB 1031 Materiality AASB 8 Operating Segments 4
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1. Segment reporting 5
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Segment reporting y Usual for reporting entities to be involved in a number of different activities and to be located in widely dispersed locations y Consolidated financial statements provide aggregated results with resulting loss of information—these results are a combination of multiple subsidiaries that could be operating in widely different industries and locations y AASB 8 Operating Segments requires the disclosure of segment information within the notes of a company’s financial statements 6
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Why is segment reporting needed? y Segment reporting provides information about the performance and financial position of various operating segments y It provides a useful supplement to consolidated financial statements where data is aggregated y Benefits of segment reporting include that it allows: for more informed decision making relating to future profitability and risk exposure of an entity management to demonstrate greater accountability interested parties to know in which sectors and locations the entity operates 7
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Possible disadvantages y Perceived costs in relation to segment data include the following: Creation of a competitive disadvantage Possibility encourages takeover bids for poorly performing segments Possibility of profitable segments attracting unwelcome attention from government and interest groups
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AASB 8 Compared to the requirements of the former standard (AASB 114), AASB 8 has less prescription and relies upon the ‘management approach’ adopted for segment reporting y AASB 8 is more principles-based than rules-based. The ‘Core Principle’: An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates y
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Lecture 11 - Lecture 11 Segments Other Required Disclosure...

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