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Hi there, I hope you’re well. I just had a question about IFRS 8, if thats okay?
I was looking at the illustrative examples of operating segments as provided by the IFRS.org link below which did a great job of explaining how exactly I reconciliations could work when complying with IFRS 8, but there were a couple of things that didn’t make sense to me.
Firstly, I wasn’t quite sure about unallocated items. I was curious as to why they do not form part of the total for the company, be it for profit/loss, liabilities and so on, and what they are exactly.
I assume they are items which are not incorporated neither within the segmental analysis, nor the companies financial statement? I just wanted a little clarification on this if possible.
Secondly, when unallocated items are present, the total figure upon which the reconciliations are based often differs from the figure provided within the breakdown of operating segments. For example, in the link provided, total reportable liabilities for the company equal £43,850, but during reconciliation of liabilities, the presence of unallocated amounts now means the total is greater than that presented to begin with.
Is this an appropriate way to reflect the reconciliation process, or should unallocated items be incorporated into the breakdown of operating segments for a more accurate reconciliation?
Thanks in advance, sorry for the long message.
If a business sells sausages and bananas they might calculate and disclose the gross profit for the sausage and banana businesses separately. If they cannot allocate the administrative costs to the separate businesses they will describe them as unallocated. Unfortunately in practice some companies just cannot be bothered to allocate these costs.
The figures disclosed should be reconciled to the figures in the financial statements but sometimes these reconciliations are incomplete or unclear.
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Oh I see, that makes sense. Thank you for the quick response.
Could a business place these totals in the “all other” segment to avoid having to reconcile this unallocated amount?
I’m just a bit confused about how the totals both during the operating segment exercise and the reconciliation exercise differ, which is why I ask the above.
Also, does this mean that the total provided after reconciliation is the true figure that the company has within its financial statements, once all segments have been reported together as one entity?
This would imply that during the process of separating the segments, the total provided in the first exercise is purely used to make all of the segments add up?
The problem with IFRS8 is that there is no compatibility at all between companies. So you will not be asked to prepare a segment report but you will be asked to criticise it. If it is not crystal clear how the numbers reconcile to the financial statements you have to say so in the answer. If there are major unallocated amounts you must criticise that as well.
In theory a company’s segmental report should reconcile to the final figures in the financial statements
The problem with IFRS8 is that there is no compatibility at all between companies. So you are unlikely to be asked to prepare a segment report but you will be asked to criticise it. If it is not crystal clear how the numbers reconcile to the financial statements you have to say so in the answer. If there are major unallocated amounts you must criticise that as well.
In theory a company’s segmental report should reconcile to the final figures in the financial statements
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Thank you Stephen, I really appreciate the thorough explanation.
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