14 September 2012
Post-implementation reviews allow the IASB to establish whether major new or amended standards are working as intended. The Board wants to ensure that they are being applied consistently and to understand any unintended consequences arising from their introduction. Post-implementation reviews are conducted two years after the new or amended standard has been applied internationally. The IASB is carrying out its first post-implementation review of a major new standard, IFRS 8 “Operating Segments”
The Board published IFRS 8 in November 2006 for application beginning from 2009 (January 2010 for the April 2009 amendments to IFRS 8). IFRS 8 is based on the idea that companies should report their segments “through the eyes of management”. This means that reported segments have to be those segments that are used internally by the chief operating decision maker (CODM) when allocating resources and assessing segment performance. Moreover, the amounts disclosed for each segment have to be measured on the same basis as that used internally by the CODM. Thus, what must be reported externally is driven by internal reporting and review procedures.
In July 2012 the IASB published a request for information. The Board had already had some feedback on IFRS 8. Many preparers and investors prefer looking at companies through the eyes of management. However, some investors do not believe that companies publish how they really manage their segments in their financial statements and have worries about profit manipulation. Some preparers of financial statements have concerns about confidentiality and possible damage to their competitive advantage. Thus the IASB is asking both preparers and investors about the perceived effect of IFRS 8’s management approach to segment reporting.
There are other issues to be considered in the review. For example, the IASB wants to understand why some companies show different management reporting structures between the segment report according to IFRS 8 in the financial statements and the management commentary or other presentations to investors. Another issue is that some investors have told the Board that comparability between companies has been lost and that the extent of comparability varies between industries and jurisdictions. In addition, some preparers find it difficult to identify the CODM and the reporting segments.
The IASB’s request for information can be commented on by interested parties until November 16, 2012. The IASB will consider comment letters together with information gathered through other consultative activities (e.g. discussions with individual investors or representative groups) in the first quarter of 2013. On the basis of the comment letters and additional information, the IASB could decide to retain IFRS 8 as issued, revise the standard to remedy any problems identified under the review or continue to monitor its implementation, if the results of the review are inconclusive.
The first post-implementation review will help to refine the methodology for undertaking future reviews, with IFRS 3 “Business Combinations” being the next review planned.
Note that IASeminars offers the following events with regard to business combinations and consolidations: