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Objectives of segmental reporting
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New Zealand International Financial Reporting Standard 8 (NZ IFRS 8) Operating Segments replaced New Zealand International Accounting Standard 14 (NZ IAS 14) Segments Reporting. Since 2009 NZ IFRS 8 has been compulsory. This essay will be covering the definition of an Operating Segment and the major changes that have occurred. It will also include summary of number and type of operating segments of the five listed companies in Part A and discussion on whether information provided under NZ IFRS 8 is of greater quality and useful for decision makers.
An operating segment as defined in NZ IFRS 8 “is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity); whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available”. (External Reporting Board, n.d.).
The main changes that have occurred as a result of the change from NZ IAS 14 to NZ IFRS 8, is how segments are identified. NZ IFRS 8 concentrates on operating segments and various disclosures made on these operating segments. NZ IAS 14 concentrates on the segment reporting of the entity. NZ IFRS 8 identifies operating segments based on internal reports reviewed regularly by the chief operating decision maker to allocate resources to the segment and assess the performance whereas NZ IAS 14 identifies two set of segments based on related products and services, and a secondary segment in order to help financial statement users to have better understandin...
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...three operating segments in the notes and accounting policies. It has disclosed the reconciliations of the totals of segment income to income statement, segment EBITDA to income statement. The 2012 Annual Report contains general information on how operating segments are identified and types of products and services these operating segments derive revenue. However, 2007 Annual report disclosed revenue and expenses as a group in one geographic segment. There are no separate disclosures about each reportable segment.
Thus, the information provided using NZ IFRS 8 provides quality information that is of greater use to the management, investors and other users of financial users for decision making. The detailed information disclosure requirement has improved the consistency with management discussion and analysis, and provides diverse measures of segment performance.
The changes in IFRS will affect some slight modifications to significant amendments of principles. It can affect different areas of financial statements and information. For example, extensive disclosure requirements, financial statements and how specific elements will be recognize and measured. Those elements are financial instrument and employee benefit (IFRS, 2012).
According to the FASB Accounting Standards Codification, goodwill is “An asset representing the future economic benefits arising from other assets acquired in a business combination or an acquisition by a not for profit entity...” (glossary). Goodwill is measured by the premium price we pay for a company; we calculate premium price by subtracting the amount we paid by the estimated price (Fair value) of the company and if we paid more goodwill is created. Goodwill is an intangible asset so it has an indefinite life because it cannot lose value over a specific amount of time. We test for impairment to find out if goodwill has kept its value or if it has declined and we test for impairment on an annual basis. However, goodwill in FASB Accounting Standards
The purpose of an income statement is to report the revenue generated and the expenses incurred by a corporation for the past year. (Melicher, 2014) The gross revenue is the first item on the financial statement followed by several expenses and then the net revenue. One of the expenses a corporation incurs is the cost of goods sold, which is the amount of money it costs a corporation to produce or manufacture the items sold to generate a profit. The second expense on a financial statement is the cost of record keeping, preparing financial statements, advertising, and salaries grouped under the heading “Selling, general, marketing expenses”. The other expenses on an income statement are depreciation, interest expense, and the unavoidable income tax. (Melicher, 2014) Once all of these expenses haven been deducted from the gross revenue a company has an accurate depiction of their net
Conclusion: It is evident that if these financial practices were to be followed, David Johnston, the CRA, the business, and its stakeholders will be satisfied. A business must obey IFRS standards, as it provides a corporation with accurate measures of finance and
As technology progresses it can truly change how a business operates in terms of accounting and financial reporting. Online software has become a widely used system by many businesses around the globe. Financial reporting is essential to any business especially when seeking for potential investors or stakeholders. The reason being is because a financial report contains all of the records of how a business is performing financial wise. Likewise there are purposes of securities regulations and the main one is to disclose any schemes.
We would love for these impacts to always have a positive impact; however the impact can affect a company in a negative manner. “ Researchers Holger Daske, Leuz Hail, Christian Leuz and Rodrigo Verdi examined 3,100 firms in 26 countries mandated to adopt IFRS in “Mandatory IFRS Reporting around the World: Early Evidence on the Economic Consequences”. The study examines the economic effects of IFRS, both early and mandated adoption” (Bolt-Lee). They were able to conclude that a company’s adoption of IFRS creates strong economic benefits in countries with rigid regulation over financial reporting. The article also explains that these benefits include an increase in the stock’s market value, an increase in market liquidity, and a lower cost of capital. Companies with major differences between GAAP and IFRS standards show the greatest benefit when supported by a strong regulatory
The public company, JB Hi-Fi, is a reporting entity which is defined in SAC 1, as those that are expected to have users who depend on the entity’s general purpose financial reports for information that will be useful for making and evaluating decisions about the allocations of scarce resources. SAC 1 provides three main indicators to identify whether JB Hi-Fi Limited is a reporting entity. Firstly, the separation of management
What is IFRS, and what is its significance in the world market? In 2001 the International Accounting Standards Board, or IASB, was created to develop a set of standards by which global financial statuses could be reported. According to financialstabilityboard.org, this set of standards, known as the International Financial Reporting Standards, or IFRS, falls under the jurisdiction of the IFRS Foundation, which is a non-profit, private and independently run entity that exists for the public interest, is based on four principle objectives. The first is to develop a single set of international financial reporting standards (IFRS). This set would be high in quality, readily understandable, easily enforceable, and acceptable world-wide. The second objective is to encourage the use of this set of standards in the international business world. Thirdly, the ISAB would like to monitor the needs of different sizes and types of businesses in different settings. The fourth objective is to promote the adoption of the IFRS by converging national accounting standards wit...
Trinity Industries International Financial Reporting Standards (IFRS): Change: Changes in accounting and financial reporting are inevitable, and accounting standards are likely to change. There are several areas of accounting that are implicated due to the change in accounting standards. For instance, one implication is the system needs to be upgraded and integrate the new standards. The company and their CPAs should consider the benefits and costs, (Aldridge & Hall. 2007). A change could either save the company money or cost them more in compliance.
... standard and help to reduce the preparer cost. And it has also enhanced the financial statements decision usefulness and make the organization prepare for expanded disclosure requirements.
The New Zealand (NZ) Framework for Financial Reporting is in the process of changing since 2009, as a result of the review of the statutory reporting requirements in New Zealand by Ministry of Economic Development (MED) and the Accounting Standard Review Board (ASRB). The mainly recommendation was to remove small and medium sized companies from the statutory reporting framework (Ernst & Young, 2013, p.11). This New Zealand Framework for Financial Reporting 2010 (NZ Framework) was issued by the New Zealand Accounting Standards Board of the External Reporting Board (XRB) in 2011. The changes of framework pull open the NZ financial reporting standards that comprise NZ Generally Accepted Accounting Practice (GAAP) setting movement from ‘rule-based’ approach to ‘principle-based’ approach. Then comes to the question: Whether the application of NZ GAAP is supported positively by the NZ Framework with the appropriate underlying principles, or it preserved a largely ‘rule-driven’ approach? From my perspective, NZ Framework provides parts of applicable underlying principles in guidance of NZ GAAP but there are rooms for improvement.
The primary users are investors, creditors, and those who advise them. It goes on to define the criteria that make up each potential user, as well as, the limitations of financial reporting. The FASB explicitly states that financial reporting is “but one source of information needed by those who make investment, credit, and similar resource allocation decisions. Users also need to consider pertinent information from other sources, and be aware of the characteristics and limitations of the information in them” (Financial Accounting Standards Board, 2006). With this in mind, it is still particularly difficult to determine who the financials should be catered towards and what level of prudence is necessary for quality judgment.
Auer (1996) for instance, conducted a study on Swiss firms which switched from Swiss GAAP to either the European Directives or to IFRS. The focus of this study (Auer, 1996) was on market volatility and the basic assumption was that the major indicator of higher information processing by market forces was higher price volatility which by extension is an evidence of greater value‐relevance of accounting data. The results from the study of Auer (1996) however revealed that the variance of abnormal returns changed significantly for firms that switched to the European Directives or IFRS. In Bahrain, Joshi & Basteki (1999) conducted a survey on 36 companies in which questionnaires were designed and administered. Their study found that majority of the respondents (86%) believed that the application of IASs gave the contents of their financial statements more relevance. Contrary to the above, Barth, et al (1998) examined whether the application of IAS is associated with higher accounting quality, but found amongst others that firms applying IAS exhibit less earnings smoothing and a higher degree of association between accounting numbers with share prices and returns. In a similar vein, some studies conducted in Australia (Goodwin & Ahmad, 2006; and Goodwin, Ahmed & Heaney, 2008) found that differences between IFRS and Australian
AASB, Australian Accounting Standards Board, Statement of Accounting Concepts SAC4 ‘Definition and recognition of the elements of financial stat
Judgement is a notion of relevance and reliability in developing and applying accounting policies. It is a requirement of management that they exercise a high degree of professional judgement when selecting appropriate accounting policies in the preparation of financial statements that is relevant to decision-making and assessment needs of users. Management should also consider the applicability of IFRS and AASB in dealing with similar and related issues and then the definitions, recognition criteria in the Conceptual Framework when there is no IFRS standard or interpretation in certain circumstances that are specifically applicable. Management may also consider the most current pronouncements of other standard-setting bodies to the extent that do not conflict with IFRS and AASB in developing accounting standards and accepted industry practices by using a similar conceptual framework.