As the effective date of the latest Singapore Financial Reporting Standards (International) (SFRS(I)s) approaches, it is crucial for professional accountants to understand the nuances of the new segment reporting requirements under SFRS(I) 8.<\/p>\n
The standard introduces a ‘management approach’ that fundamentally changes how operating segments are identified, with significant practical implications for preparers, auditors, and users of financial statements.<\/p>\n
A ‘management-defined performance’ measure for an operating segment qualifies as such only if it clearly depicts management\u2019s perspective on a specific aspect of the company\u2019s overall financial performance.<\/p>\n
Under SFRS(I) 8, operating segments are identified based on the internal reports that are regularly reviewed by the entity’s chief operating decision maker (CODM) to allocate resources and assess performance. This contrasts with the previous approach under FRS 14 (which was loosely described as a management approach but differed fundamentally) where segments were identified based on components of the business exposed to similar risks and generating similar rates of return. Under FRS 14, internal reporting was only a starting point, whereas SFRS(I) 8 mandates that internal reporting be the basis for external segment disclosures.<\/p>\n
For example, two entities in the same industry can have very different operating segments under SFRS(I) 8. Entity A, structured on a regional basis, will report regional segments, while Entity B, structured on a product-line basis, will report product segments. This directly reflects how management makes operating decisions and assesses performance.<\/p>\n
Under SFRS(I) 8, segment information may include a management-defined performance measure (MPM). An MPM is a subtotal of income and expenses that is not specifically defined in SFRS(I)s but is used by management to communicate its view of the company’s financial performance to the public. For an MPM to qualify, it must clearly show management’s perspective on some aspect of the company’s overall financial performance. For instance, a subtotal that relates only to a single reportable segment and does not reflect the company’s overall financial performance cannot be considered an MPM.<\/p>\n
When presenting an MPM, entities must either:<\/p>\n
include in the same note all required details for every MPM, clearly labelling the information so users can distinguish what relates to the MPM requirements from what relates to SFRS(I) 8; or<\/p>\n<\/li>\n
provide a separate note that contains all required details for every MPM, including those already mentioned in the segment information.<\/p>\n<\/li>\n<\/ul>\n
Despite the conceptual clarity of the management approach, several practical issues have emerged:<\/p>\n
Identification of the Chief Operating Decision Maker (CODM)<\/strong>: The European Securities and Markets Authority (ESMA) has published a post-implementation review of IFRS 8 (the international equivalent of SFRS(I) 8) and found confusion over identifying the CODM. This is a critical first step, as the CODM determines which internal reports are used to identify segments.<\/p>\n<\/li>\n Lack of Comparability<\/strong>: The management approach can lead to inconsistent and incompatible segment reports, even among companies in the same industry. As the example above illustrates, two similar companies may report completely different segments, hindering peer comparison.<\/p>\n<\/li>\n Managerial Discretion and Subjectivity<\/strong>: The standard gives significant discretion to management, which can lead to a lack of clarity on the basis for identifying segments. This discretion may allow management to reduce the amount of commercially sensitive information they disclose.<\/p>\n<\/li>\n Inter-Segment Transactions<\/strong>: Problems can arise in measuring segmental performance if segments trade with each other, as internal transfer pricing may not reflect market values.<\/p>\n<\/li>\n Segment Profit\/Loss Measure<\/strong>: IFRS 8 does not define a measure of segment profit or loss, leaving it to management to determine the appropriate metric. This can result in segment profit\/loss measures that are less predictive of future performance and less value-relevant than non-GAAP measures.<\/p>\n<\/li>\n<\/ol>\n The adoption of SFRS(I) 8 has several impacts on financial reporting:<\/p>\n Cost Effectiveness<\/strong>: Data can be reported externally in the same way as it is in the managerial accounts, reducing preparation costs.<\/p>\n<\/li>\n Decision Usefulness<\/strong>: The management approach has been shown to mitigate information asymmetries, reduce the cost of capital, and affect the work of financial analysts.<\/p>\n<\/li>\n Impairment Testing<\/strong>: Identifying operating segments can also affect the accounting for impairment of assets, as it influences the identification of cash-generating units.<\/p>\n<\/li>\n<\/ul>\n Professional accountants should be aware of the following practical considerations when applying SFRS(I) 8:<\/p>\n Documentation<\/strong>: Thoroughly document the identification of the CODM and the basis for determining operating segments.<\/p>\n<\/li>\n Reconciliations<\/strong>: Ensure that reconciliations between segment information and the financial statements are clearly presented.<\/p>\n<\/li>\n Disclosure<\/strong>: Provide clear and transparent disclosures about the measurement of segment profit or loss and any management-defined performance measures.<\/p>\n<\/li>\n Consistency<\/strong>: Apply the same segmentation consistently over time, unless a change in internal reporting structure necessitates a change.<\/p>\n<\/li>\n<\/ul>\n SFRS(I) 8 represents a significant change in segment reporting, aligning external disclosures with internal management perspectives. While the management approach offers benefits in terms of cost effectiveness and decision usefulness, it also introduces challenges related to comparability, managerial discretion, and the measurement of segment performance. Professional accountants must exercise careful judgment and ensure robust documentation to navigate these complexities effectively.<\/p>\n Source: SFRS(I) 8, 30 March 2026<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" As the effective date of the latest Singapore Financial Reporting Standards (International) (SFRS(I)s) approaches, it is crucial for professional accountants to understand the nuances of the new segment reporting requirements under SFRS(I) 8. The standard introduces a ‘management approach’ that fundamentally changes how operating segments are identified, with significant practical implications for preparers, auditors, and […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[7,6],"tags":[],"class_list":["post-2957","post","type-post","status-publish","format-standard","hentry","category-accounting","category-techupdates"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/posts\/2957","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/comments?post=2957"}],"version-history":[{"count":3,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/posts\/2957\/revisions"}],"predecessor-version":[{"id":2960,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/posts\/2957\/revisions\/2960"}],"wp:attachment":[{"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/media?parent=2957"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/categories?post=2957"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/ehluar.com\/main\/wp-json\/wp\/v2\/tags?post=2957"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Impacts on Financial Reporting<\/h5>\n
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Practical Considerations<\/h5>\n
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