(a) IFRS 8 Operating segments requires that segmental information be provided by listed entities. Clearly FGH is looking to list and hence IFRS 8 will be applicable. The disclosures requisite are certainly extensive and should the information need to be compiled from scratch then this is likely to be time-consuming and costly.
Though, the concentrate of IFRS 8 is that the entity should utilise information gathered for internal decision making. Therefore, in accordance with IFRS 8, it is the directors who decide which components of the business are reportable segments and these segments should be the individual parts of the business that the leader operating decision maker re-evaluate in order to make financial and economic decisions. The entity will consequently previously have prepared the financial information for these parts of the business for internal management purposes and so the costs of compliance should be minimal.
(b) (i) Relevance to investors (advantages)
In accordance with IFRS 8, the operating segment investigation will reflect the information used by the chief operating decision maker of the entity to make economic decisions about the business. Therefore, investors get to study what the decision makers within the entity think is important and also get an idea of how good/bad their decision making is. This will assist investors to make investment decisions which are based upon their evaluation of and confidence in the management team.
Several listed entities connect in diverse activities and operating segment analysis could help describe the breakdown of the business activities and the principal risks affecting performance. This once more will help investors to make decisions.
IFRS 8 also necessitate that entities provide information on major customers and a geographical split of results and resources. Again this information is probable to be related to investors as it provides detail which is not evident in the main financial statements.
Since 75% of total reported revenue must be covered by operating segment analysis, the information provided is likely to be extremely related as it considered the majority of the business.
(ii) Limitations
Since it is management that create a decision on which segments are reported, no two entities will necessarily use the same criteria. Therefore there is a short of comparability between entities.
There is also a risk that entities will hide information by the way they describe the reportable segments.