I) The reason of the importance of MFRS 8 Operating Segments for

accounting user
A Framework for decision making
MFRS 8 is important because It specifies how the firm should report their information about its
operating segments in the annual financial statements and interim reports and because its sets out
the requirements for related disclosures about products and services, geographical area and major
customers, therefore the firm can not include any segment in the annual financial statement, any
segment reported must have meet specified criteria.
Clear Identification of Financial Benefits
MFRS 8 is important because stakeholders can view the activities of the segments and see how
its adds to the development and growth of the firm, since MFRS 8 requires the firm to report the
profit or loss of the segments assets and also it requires the firm to quantify the segment
liabilities and also to disclose information about countries where its earns revenues and
information about the firms major customers, so by disclosing this information stakeholders are
able to make informed decisions about the firm
Entity Wide Disclosures
MFRS 8 is important because it facilitates entity wide disclosures because in doing the analysis
of a large firm there need to be a breakdown of the segments performance in order to properly
evaluate individual operating segments to determine how resources should be allocated to the
most effective segments and where to moves resources from the less performing segments to a
higher performing segment.
For example of a geographical resource allocation analysis: is if the Brazilian segment of a
company is not performing as much as their Singaporean segment, the assets can be transferred
to the Singaporean branch in order to facilitate additional improvement
Commercial Sensitivity

MFRS 8 provides rules to prevent/limit the disclosure of commercially sensitive information

about growth in the future, management generally dont like to reveal or mostly reveal less
quantity of such information that will affect prices, so even though MFRS 8 encourages
companies to become more transparent in order for customers to analyze useful pricing
information from these segments disclosure. When too much of sensitive information is
disclosed it can be a problem for smaller firms who do not have much segments thus revealing
information that could give rise to commercial disadvantages and thereby hinder the growth of
these smaller firms
International Diversification
The geographic segment disclosure of a company shows a companys international
diversification, which gives a good signal to the company investors and other stakeholders and
revealing the segment information also makes them aware of the risks imposed by such
diversification such as currency exchange issues that may arise hence exchange gains or losses
and also how the economic and political environment in which these segments operates could
also affect the companys cash flow positively or negatively like country specific political and
economic risks
Enhance Forecast and Prediction
MFRS 8 enhances accurate forecast and predictions of a firms performance. Information related
to the origin of a firms earnings and income plays an important role in predicting the firms totals
income, due to huge differences in in risks and growth opportunities between countries, a
breakdown of the is information leads to a better understanding of the companys value and then
this leads to a more accurate forecast of the future and disclosure of this information also lowers
the stock price volatility
Detail disclosures provided
MFRS 8 provides a very detail disclosures that are highly needed in regards profit or loss and
assets, where those amounts are included in measuring the profit or loss and total assets. Thus,
this disclosures helps the users to in decision making process. The internal reporting system may
use more than one measure of an operating segment's profit or loss, or assets or liabilities. In

such circumstances the measure used in the segment report should be the one that management
believes is most consistent with those used to measure the corresponding amounts in the entity's
financial statements. Examples of disclosures :
Revenues - internal and external.
Interest revenues and interest expense. These must not be netted off unless the majority
of a segment's revenues are from interest and the chief operating decision maker
assesses the performance of the segment based on net interest revenue.

Depreciation and amortization.

Material items of income and expense disclosed separately.Share of profit after tax of,
and carrying value of investment in, entities accounted for under the equity method.

Material non-cash items other than depreciation and amortization.

The amount of additions to non-current assets other than financial instruments, deferred
Tax assets, post-employment benefit assets and rights arising under insurance contracts.

Entities are required to provide a number of reconciliations:

1. the total of the reportable segments' revenues to the entity's revenue
2. the total of the reportable segments' profit or loss to the entity's profit or loss
3. the total of the reportable segments' assets to the entity's assets
4. where separately identified, the total of the reportable segments' liabilities to the
entity's liabilities and
5. the total of the reportable segments' amounts for every other material item
disclosed to the corresponding amount for the entity

Aggregation of criterias
Basically, operating segments provides the long-term financial performance when they have
similar characteristics. For example, the similar long-term average gross margins for two
operating segments would be expected if their economic characteristics were similar. Two or
more operating segments may be aggregated into a single operating segment if aggregation is
consistent with the core principle of this MFRS, the segments have similar economic
characteristics, and the segments are similar. Therefore, this aggregation of criteria would
actually a very important and useful for users as it contains aspects such as:
(a) the nature of the products and services;
(b) the nature of the production processes;
(c) the type or class of customer for their products and services;
(d) the methods used to distribute their products or provide their services; and ,
(e) if applicable, the nature of the regulatory environment, for example, banking, insurance or
public utilities.

Stakeholders
Naturally, several market participants as well as the stakeholders will also be interested in the
disclosure of information about a firms operating segments. According to the MFRS, the
segment information is essential to help users of the financial statements in better understanding
the entitys past performance, directly gives the access more easily to the entitys risk and returns
and straight in making more informed judgments about the entity as a whole. It will be more
accurate to say that all the users will need disaggregated and consolidated information. As given
the fact that the large companies can have very multifaceted and diverse structures, segment
information that seems to be essential to users in order to understands a firms performance and

risks and to analyze the firms strategies and also the future potentials. Therefore, needs and
reasons of the importance of MFRS 8 Operating segments to accounting users :
Government: Information on country level
Shareholders : interested in the performance of the company as a whole, since their
investments concern the whole enterprise.
Group : to estimate fully the performance of the whole enterprise one has to take into
consideration the separate performances and prospects of each sector
Different segments : information about each segment of business
It is also can be argued that geographic segment disclosures indicate a companys international
diversification, giving a good indication to investors about the companys potentials. Therefore,
it helps them to conclude that revealing more segmental information should be beneficial not
only for investors but also for the company itself. Furthermore, according to Dave Nichols, Larry
Tunnel and Cindy Seipel (1995), a companys expected cash flows and also its value, may be or
could be affected by the economical and political environment in which it operates. Hence the
information about particular segments should therefore be of high

and importance to

stakeholders in order to assess the companys value through the prediction and exploitation if its
future cash flows.