Aasb 8

The adoption of the AASB 8 has encompassed the transformation from a perspective approach to a management approach to segment reporting. Commentators have contended that the approach places favouritism on preparer’s rather than the users, in contrast to its predecessor AASB 114. The favouritism is sourced from the discretion that managers are provided with under the AASB 8.
The implementation of the management approach under AASB 8 implies that operating segments identified within internal reports to the CODM are reported in an externally identical manner. Commentators have argued that as a result of this central concentration of internal reports, the comparability of financial reporting between entities diminishes (David, Albrecht 1998).
Under the requirements of the AASB 8 (paragraph 23), if the measure of revenue and total assets and liabilities for each operating segment regularly remain reported to the CODM, the amounts specified require disclosing. However, the specificity and degree to which the methods are to be justified are undefined within the AASB 8. The inevitable consequence is that the degrees of financial analysis between entities will differ. For instance, various entities may incorporate distinctive judgments based on internal reporting which therefore greatly constrains its inter-firm comparability. The flexibility of the management approach means that the overall identification of the segments will depend on the proficiency and comprehension of management and their ability to determine the necessary apparatuses for operations. Some entities may be well versed in identifying functions which gives rise to the identification of a segment relative to other entities who are unable to determine or effectively deconstruct the constituents of its profits and losses, and the respective users of these financial statements are hindered from understanding the risks and returns of the entity on a deconstructed level; and thus the purpose of the AASB 8 particularly in respect of introducing the management approach is unrealized (Deegan). However, AASB 8 section 27 restricts the extent to which management judgments may restrict inter-firm comparability, by requiring companies to elaborate on how each segment measures their revenue/assets/liabilities, which promotes a clearer and depictive understanding of the relevant