AASB 8

Australian Accounting Standards Board (AASB 8)

Introduction1

Discussion2

1. What is the Scope of AASB-8?2

2. Operating Segment2

2.1. Advantages of Operating Segment (AASB 8)3

2.2. Disadvantages of Operating Segment (AASB 8)4

3. Determination of an Entity's Reportable Income4

3.1 Aggregation of operating Segment [Para 12 of AASB-8]4

4. Measurement of Operating Segment information5

5. Generation of Useful Information for the Stakeholders5

5.1. Inter-Firm Comparability5

5.2. Identification of Reportable Business Segments6

5.3. Protects Investors Stake6

5.4. Strategic Decision6

5.5. Future Outlook6

6. Generation of Misleading Information7

6.1. Narrowed information7

6.2. Concentrated Investment7

6.3. Benefit the Competitor8

6.4. Discourage the Potential Information8

Conclusion8

Australian Accounting Standards Board (AASB 8)

Introduction

AASB is responsible for designing, maintaining and issuing accounting and reporting standards in the territory of the Australia government. The board was established in 1991 for the purpose of outlining the reporting guidelines for the business operations. It drives its large number of policies and activities from IASB (International Accounting Standard Board) and FRC (Financial reporting Council). AASB aims at identifying the different ways to ensure the fair and true reporting of financial statements (AASB, 2010, Pp. 1-23). This report examines the role of accounting standards, and main emphasis of the report will remain in the critical evaluation of AASB-8.

Discussion

1. What is the Scope of AASB-8?

AASB 8 (operating Segment) was firstly released during 2007 and replaced the AASB 114. It was issued as a part of the converging process of standards. AASB 8 comprises of less prescription as compared to former standard (AASB 114), and it mainly relies upon the management approach that is adopted for the segment reporting. AASB 8 is a principle based standard where as AASB 114 is a rule based. Regulators and professionals realize the need of new accounting standard to replace the AASB 114, because AASB 114 required the distinct classification of 2 categories (business segment and geographical segment). In contrast, AASB 8 refers to operating segment. In comparison to its predecessor standards (AASB 114), AASB 89 has a slender scope. It covers or applies only to the profit entities; are the entities whose debt or equity instruments are traded publicly (CCH, 2009, Pp. 60-200).

2. Operating Segment

Standard 8 of AASB (AASB-8) focuses on operating segment. According to this standard a segment is considered as an operating segment if it earns revenue and incurs relevant expenses, whereas it's operating income (operating results) is evaluated and reviewed by the authorities (chief decision makers); and its important that discrete information regarding this segment also need to be presented (The Institute of Chartered Accountants in Australia, 2012, Pp.200-320). Treatment of operating segment is different from non operating segment in a way that AASB-8 deals with operating segment; on the other hand, handling of non operating segments is managed under the provisions of the AASB-5 as discontinued operations. In short, it can be infer that a segment is treated as operating segment if it fulfils at least three requirements

It generates revenue and incur expenses to generate such revenue

Its operating outcomes are evaluated and reviewed

Distinct (Discrete) information regarding its financials is present.

2.1. Advantages of Operating Segment (AASB 8)

There are a number of advantages ...