Question 1

The core principle of AASB 8 Operating Segments is for a reporting entity to 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.

Accepted Answer

This statement accurately reflects the core principle of AASB 8 Operating Segments.

Question 2

Management may be concerned that segment reporting will put the entity at competitive disadvantage,so it has been suggested that it can avoid providing accurate segment reports through opportunistic interpretation of the definition of a business segment.

Accepted Answer

Management may indeed be concerned that detailed segment reporting could reveal sensitive information that might put the entity at a competitive disadvantage. This concern could lead them to interpret the definitions and requirements around segment reporting in a way that allows them to avoid disclosing certain details, thus engaging in opportunistic reporting practices.

Question 3

AASB 8 bans the disclosure of segments that do not pass the '10 per cent test'.

Accepted Answer

AASB 8 requires disclosure of all segments that meet any of the quantitative thresholds (e.g. 10% test), qualitative thresholds or reportable segments that are not quantitative thresholds. Therefore, it does not ban the disclosure of segments that do not pass the '10 per cent test'.

Question 4

AASB 8 identifies five factors that are to be considered in determining whether or not products and services are related for the purposes of defining a business segment.It further specifies that the products and services included in a business segment must be similar with respect to all these factors.

Accepted Answer

AASB 8 requires operating segments to be identified based on internal reports that 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. It does not specify that products and services in a segment must be similar with respect to five specific factors for defining a business segment.

Question 5

AASB 8 allows reportable segments to be combined as a single operating segment if:
 (a)they exhibit similar long-term financial performance; and (b)they are similar in all of the appropriate factors identified in the standard in relation to segment revenues,expenses,assets and liabilities.

Accepted Answer

The answer of AASB 8 allows reportable segments to be...

Question 6

AASB 8 Operating Segments requires reconciliation of total reportable segment revenues,total profit or loss,total assets,total liabilities and other amounts disclosed for reportable segments to the corresponding amounts shown in the parent entity's separate financial statements.

Accepted Answer

AASB 8 requires reconciliation of the total reportable segment revenues, total profit or loss, total assets, and other amounts disclosed for reportable segments to the corresponding amounts in the entity's financial statements. It does not require reconciliation to the parent entity's separate financial statements but to the consolidated financial statements of the group.

Question 7

Segment information may be useful to investors who wish to use ethical guidelines about which industries or countries they invest in.

Accepted Answer

By providing information on the performance and operations of different segments or business units within a company, investors can make informed decisions about which areas align with their ethical guidelines. This allows investors to support industries or countries that align with their values and avoid those that do not.

Question 8

AASB 8 Operating Segments requires an entity to report a measure of segment liabilities and particular income and expense items,if such measures are regularly provided to the chief operating officer.

Accepted Answer

AASB 8 requires an entity to report a measure of segment liabilities and certain income and expense items if they are regularly provided to the chief operating officer. This is in addition to requiring the disclosure of segment revenue, segment profit or loss, and certain other information about an entity's operating segments.

Question 9

If a financial report contains both the consolidated financial statements of a parent and the parent's separate financial statements,segment information is required for both statements.

Accepted Answer

Segment information is typically required for the consolidated financial statements to provide insight into the different areas of business operations, but it is not usually required for the parent company's separate financial statements, which focus on the parent's own financial position and results without considering its subsidiaries.

Question 10

Legal entities often combine to form an economic entity.

Accepted Answer

Legal entities, such as corporations or partnerships, may combine to form a single economic entity for various reasons, such as pooling resources or reducing competition. This entity may have its own separate legal identity and carry out business activities as a whole.

Question 11

Two or more operating segments may be aggregated into a single operating segment if aggregation is consistent with the core principle of AASB 8,or the segments have similar economic characteristics,or the segments are similar in the nature of the products and services.

Accepted Answer

The answer of Two or more operating segments may be...

Question 12

A geographical segment is defined in part by AASB 8 as being a distinguishable component of an entity engaged in providing products and services within a particular social and cultural environment.

Accepted Answer

AASB 8 defines an operating segment, not a geographical segment, as a component of an entity that engages in business activities from which it may earn revenues and incur expenses. Geographical segments are considered within the context of segment reporting but are not defined in this way by AASB 8.

Question 13

The consolidated statement of comprehensive income provides an indication of the aggregated financial performance of many dissimilar entities.

Accepted Answer

The consolidated statement of comprehensive income provides an indication of the financial performance of multiple entities that have been consolidated into one. These entities may be different in terms of their size, industry, location, and other factors, but their financial results are combined and presented in a single statement. Therefore, the statement provides an overview of the performance of the entire group, rather than individual entities.

Question 14

For a segment to be reportable,AASB 8 requires that majority of revenues be earned from external parties and the segment satisfies one of the three quantitative thresholds.

Accepted Answer

According to AASB 8, a segment is reportable if it meets the majority revenue test, which means that the segment earns the majority of its revenue from external parties, and satisfies one of the three quantitative thresholds.

Question 15

IFRS 8 was issued as part of the ongoing process to converge IASB standards with the US accounting standards.

Accepted Answer

IFRS 8 was issued with the objective of improving the transparency and relevance of financial reporting of operating segments, and it was also intended to facilitate the global convergence of accounting standards. One of the primary motivations for its issuance was to address differences in segment reporting requirements between IFRS and US GAAP.

Question 16

Identification of operating segments in AASB 8 Operating Segments adopts a 'rules-based' approach,while its predecessor AASB 114 Segment Reporting adopts a 'principles-based' approach.

Accepted Answer

AASB 8 Operating Segments adopts a 'principles-based' approach, focusing on the internal reports that management uses to make decisions, while its predecessor AASB 114 Segment Reporting was more prescriptive and could be considered more 'rules-based'.

Question 17

Research has shown that companies only provide segment information when it is required by accounting regulation.

Accepted Answer

While accounting regulations may require segment information in some cases, companies also voluntarily provide this information to their investors, analysts, and other stakeholders. Segment information can provide insights into a company's performance in different product lines, geographic regions, or customer types, which can be useful for decision-making and valuing the company.

Question 18

AASB 8 does not require disclosure of a reportable segment if a segment is mainly transacting with related parties.

Accepted Answer

AASB 8 requires disclosure of all reportable segments, regardless of whether they transact mainly with related parties.

Question 19

AASB 8 specifies guidelines regarding whether or not a segment is reportable.These guidelines are known as the 10 per cent rules.All three rules are required to be met in order to establish a reportable segment.

Accepted Answer

AASB 8 requires that at least one of the 10 percent rules (revenue, profit or loss, and assets) must be met for a segment to be reportable, not all three.

Question 20

AASB 8 specifies that a geographical segment cannot include more than two countries:

Accepted Answer

AASB 8 does not specify a limit on the number of countries that can be included in a geographical segment. However, it does require that the segment be based on the location of its customers or on its assets and operations.

Quiz 24: Segment Reporting