This Comment Letter was sent by BDO Global Coordination B.V., on behalf of BDO International, to the European Commission in July 2007:
Dear Sirs,
Endorsement of IFRS 8 Operating Segments
We are pleased to have the opportunity to comment on the above questionnaire issued by European Commission, on behalf of BDO International.
In answer to your initial queries, BDO International is a world wide network of public accounting firms, called BDO Member Firms, serving international clients. Each BDO Member Firm is an independent legal entity in its own country. The network is coordinated by BDO Global Coordination B.V., incorporated in the Netherlands, with an office in Brussels, Belgium, where the Global Coordination Office is located.
We set out below our brief responses to your specific questions.
Responses to Questions
Question 1
Please indicate whether you submitted comments to IASB and/or EFRAG during their consultations.
We submitted a letter to the IASB dated 19 May 2007. This letter was supportive of the introduction of IFRS 8, albeit with a requirement to reconcile the amounts reported for each segment to the IFRS amounts reported in the financial statements.
Question 2 | a) |
Do you think information prepared under the management approach on which IFRS 8 is based is more relevant, reliable, comparable, understandable and useful than information prepared under IAS 14? |
| b) |
Do you think that information prepared under the management approach improves the true and fair representation of business activities? |
| c) |
Are you of the opinion that segment information based on the management approach provides greater accuracy for measuring individual segments and ultimately results in greater forecast precision than segment information based on IAS 14? |
We believe that looking at segments on the same basis as management provides more relevant information for the users of financial statements. Some may argue that comparability is lost and that this is of primary importance. We disagree, as the management approach affords the possibility to compare more easily how different entities are managed, and we consider that this is very relevant information.
Question 3: | a) |
Do you assess that cost for preparation of information is lower under IFRS 8 than under IAS 14? |
| b) |
Do you think that the cost/benefit balance of replacing IAS 14 by IFRS 8 is positive (e.g. lower cost outweighing the potentially lower quality of information provided or potentially higher quality of information provided outweighing higher cost)? |
We expect that the adoption of IFRS 8 will result in reduced costs, as companies that do not report segmental information internally on an IFRS basis will not need to prepare this additional information for the purposes of note disclosures in their financial statements.
Question 4
Do you consider that the principles on which IFRS 8 is based, in particular the fact that information for segment reports should be prepared through the eyes of the "chief operating decision maker", would pose problems on established EU practices, e.g. in the area of corporate governance?
While accounting standards might play a part in improving corporate governance, we do not consider that this should be their primary purpose.
Although IFRS 8 requires segmental information to be prepared through the eyes of the “chief operating decision maker”, it is expected that the information will be reported to the Board of Directors (“the Board”) in the format that the Board as a whole requires. In consequence, we would expect the financial statements, which for companies in Europe are the responsibility of the Board, to contain the information that the Board as a whole requires, rather than an analysis of segments from the perspective of only one member of the Board.
Question 5
Do you agree with the argument that IFRS 8 requires smaller listed companies to report a segment by segment analysis of their business including commercial sensitive information with the effect that competitiveness of smaller listed companies in the EU will be harmed? Please provide reasons for your view and indicate how far that constitutes a change compared to the requirements of IAS 14.
We are sympathetic of the view that smaller listed companies might be required to disclose in their financial statements commercially sensitive information that is not previously available. In that context, we suggested to the IASB in our comments that a “seriously prejudicial exemption” be included in IFRS 8, with the proviso that if advantage were to be taken of this exemption, disclosure of the reason(s) that the exemption was needed should also be given.
Question 6
Do you believe that the lack of mandatory requirements for full segment information on a geographical basis in IFRS 8 gives sufficient reason for a non-endorsement decision?
Do you believe that other mandatory requirements for segment information are missing in IFRS 8 (compared to IAS 14)? If yes, which ones?
We consider that the requirements of IFRS 8 are sufficiently broad. If additional information were to be found useful by users of financial statements, we expect that companies that failed to provide this enhanced disclosure would be penalised by those users.
Question 7
Can you provide any information that has been generated by field studies, research work, internal analysis carried out in your organisation, jurisdiction?
No.
Question 8
If you have any further comments on this consultation please provide them to us.
We have no further comments.
These comments above have been prepared by BDO International’s IFRS technical committee, during a consultative process. Please contact Helen Thomson, HThomson@bdoglobal.com), should you have any queries or require further information.
Yours faithfully,
BDO Global Coordination B.V.
 Endorsement of IFRS 8 - Operating Segments - Questionnaire.pdf
Endorsement of IFRS 8 - Operating Segments - Comment Letter.pdf |