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A Critical Analysis of the Impact and Usage of the Introduction of International Financial Reporting Standard 8

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According to the IASB Paper on IFRS 8 (2006), the prime objective of the IASB is to achieve the convergence of accounting standards in all the countries around the world. With this objective in view, the IASB and the Financial Accounting Standards Board (FASB) in the United States have undertaken a joint short term project with the objective of reducing the difference between the IFRSs and US GAAP that are capable of resolution in a relatively shorter period of time. The other consideration was that the differences to be addressed must be outside the major projects.

With a view to adopting high-quality financial reporting solutions, both the Boards considered the standards prescribed by them recently and evolved the new standard as the best combination of existing standards. In order to decide on the new IFRS 8 standard, the IASB compared the IAS 14 Segment Reporting and SFAS 131 Disclosures about Segments of an Enterprise Related Information. It is worth noting that the IAS 14 was adopted substantially from the earlier standard issued by the International Accounting Standards Committee (IASC) in the year 1997.

Hence the main reason for the issue of a revised standard in IFRS 8 is to increase the convergence of different standards as well as to present the best of the standards available in respect of Segment Reporting. Generally, on the information for the readers of the financial statements, the earlier standards required the entities to report on such information the management would have used internally for the evaluation of the performances of the different segments of the entity. However, it was observed that such information is different from the ones used by the entities to draw up the income statements and Balance Sheets.

Such disclosures usually helped the users to understand the firm’ s operations in general but did not provide enough information to assess the performance of its segments. It greatly hampered the user’ s ability to make a meaningful analysis of the performance of the segments vis-à -vis that of the entity.  

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