Importance of MFRS 8 Operating Segments for Accounting User

I) The reason of the importance of MFRS 8 Operating Segments for accounting user A Framework for decision making

MFRS 8 is important because It specifies how the firm should report their information about its operating segments in the annual financial statements and interim reports and because its sets out the requirements for related disclosures about products and services, geographical area and major  customers, therefore the firm can not include any segment in the annual financial statement, any segment reported must have meet specified criteria Clear Identification of Financial enefits

MFRS 8 is important because sta!eholders can view the activities of the segments and see how its adds to the development and growth of the firm, since MFRS 8 requires the firm to report the  profit or loss of the segments assets and also it requires the firm to quantify the segment liabil liabilit ities ies and also also to disclo disclose se inform informati ation on about about countri countries es where where its its earns earns revenue revenuess and information about the firms major customers, so by disclosing this information sta!eholders are able to ma!e informed decisions about the firm !ntit" #ide $isclosures

MFRS 8 is important because it facilitates entity wide disclosures because in doing the analysis of a large firm there need to be a brea!down of the segments performance in order to properly evaluate individual operating segments to determine how resources should be allocated to the most effective segments and where to moves resources from the less performing segments to a higher performing segment For e"ample of a geographical resource allocation analysis# is if the $ra%ilian segment of a company is not performing as much as their Singaporean segment, the assets can be transferred to the Singaporean branch in order to facilitate additional improvement Commercial Sensiti%it"

MFRS 8 provides rules to prevent&limit the disclosure of commercially sensitive information about growth in the future, management generally don't li!e to reveal or mostly reveal less quantity of such information that will affect prices, so even though MFRS 8 encourages companies to become more transparent in order for customers to analy%e useful pricing information from these segments disclosure (hen too much of sensitive information is disclosed it can be a problem for smaller firms who do not have much segments thus revealing information that could give rise to commercial disadvantages and thereby hinder the growth of  these smaller firms International $i%ersification

)he geographic segment disclosure of a company shows a company's international diversification, which gives a good signal to the company investors and other sta!eholders and revealing the segment information also ma!es them aware of the ris!s imposed by such diversification such as currency e"change issues that may arise hence e"change gains or losses and also how the economic and political environment in which these segments operates could also affect the company's cash flow positively or negatively li!e country specific political and economic ris!s !nhance Forecast and &rediction

MFRS 8 enhances accurate forecast and predictions of a firm's performance Information related to the origin of a firms earnings and income plays an important role in predicting the firms totals income, due to huge differences in in ris!s and growth opportunities between countries, a  brea!down of the is information leads to a better understanding of the company's value and then this leads to a more accurate forecast of the future and disclosure of this information also lowers the stoc! price volatility $etail disclosures pro%ided

MFRS 8 provides a very detail disclosures that are highly needed in regards profit or loss and assets, where those amounts are included in measuring the profit or loss and total assets )hus, this disclosures helps the users to in decision ma!ing process )he internal reporting system may use more than one measure of an operating segment*s profit or loss, or assets or liabilities In

such circumstances the measure used in the segment report should be the one that management  believes is most consistent with those used to measure the corresponding amounts in the entity*s financial statements +"amples of disclosures # Re%enues ' internal and e(ternal

Interest revenues and interest e"pense )hese must not be netted off unless the majority of a segment*s revenues are from interest and the chief operating decision ma!er assesses the performance of the segment based on net interest revenue

$epreciation and amorti*ation

Material items of income and e"pense disclosed separatelyShare of profit after ta" of, and carrying value of investment in, entities accounted for under the equity method

Material non'cash items other than depreciation and amorti*ation

)he amount of additions to noncurrent assets other than financial instruments, deferred )a" assets, postemployment benefit assets and rights arising under insurance contracts

!ntities are re+uired to pro%ide a num,er of reconciliations- the total of the reportable segments* revenues to the entity*s revenue . the total of the reportable segments* profit or loss to the entity*s profit or loss / the total of the reportable segments* assets to the entity*s assets 0 where separately identified, the total of the reportable segments* liabilities to the

entity*s liabilities and 1 the total of the reportable segments* amounts for every other material item disclosed to the corresponding amount for the en tity

Aggregation of criteria.s

$asically, operating segments provides the longterm financial performance when they have similar characteristics For e"ample, the similar longterm average gross margins for two operating segments would be e"pected if their economic characteristics were similar )wo or  more operating segments may be aggregated into a single operating segment if aggregation is consistent with the core principle of this MFRS, the segments have similar economic characteristics, and the segments are similar )herefore, this aggregation of criteria would actually a very important and useful for users as it contains aspects such as# 2a3 the nature of the products and services4 2b3 the nature of the production processes4 2c3 the type or class of customer for their products and services4 2d3 the methods used to distribute their products or provide their services4 and , 2e3 if applicable, the nature of the regulatory environment, for e"ample, ban!ing, insurance or  public utilities

Stakeholders

 5aturally, several mar!et participants as well as the sta!eholders will also be interested in the disclosure of information about a firm's operating segments 6ccording to the MFRS, the segment information is essential to help users of the financial statements in better understanding the entity's past performance, directly gives the ac cess more easily to the entity's ris! and returns and straight in ma!ing more informed judgment's about the entity as a whole It will be more accurate to say that all the users will need disaggregated and consolidated information 6s given the fact that the large companies can have very multifaceted and diverse structures, segment information that seems to be essential to users in order to understands a firm's performance and

ris!s and to analy%e the firm's strategies and also the future potentials )herefore, needs and reasons of the importance of MFRS 8 7perating segments to accounting users #    

overnment# Information on country level Shareholders # interested in the performance of the company as a whole, since their investments concern the whole enterprise roup # to estimate fully the performance of the whole enterprise one has to ta!e into consideration the separate performances and prospects of each sector  9ifferent segments # information about each segment of business

It is also can be argued that geographic segment disclosures indicate a company's international diversification, giving a good indication to investors about the company's potentials )herefore, it helps them to conclude that revealing more segmental information should be beneficial not only for investors but also for the company itself Furthermore, according to 9ave 5ichols, :arry )unnel and ;indy Seipel 2-<<13, a company's e"pected cash flows and also its value, may be or  could be affected by the economical and political environment in which it operates =ence the information about particular segments should therefore be of high

and importance to

sta!eholders in order to assess the company's value through the prediction and e"ploitation if its future cash flows