ESMA's comment letter on IFRS 8 'Operating Segments'

23 August 2011

The ESMA commented on the IFRS Interpretation Committee's tentative agenda on IFRS 8 'Operating Segments – aggregation of operating segments and identification of the chief operating decision-maker' (CODM).

The ESMA strongly supports the proposal to include an additional disclosure in paragraph 22 of IFRS 8 requiring a brief description of both the operating segments that have been aggregated and the economic indicators that have been assessed in order to conclude that the operating segments have “similar characteristics” in accordance with paragraph 12 of IFRS 8. This in, ESMA´s view, would improve both the quality of information and the rationale provided to investors to help them understand an issuer’s approach to segmental reporting.

It is important for ESMA that the standard provides useful information to investors, allowing them to evaluate the nature and financial effects of the business activities in which a company engages, and the economic environments in which it operates. This is achieved through issuers reporting the information used internally to make operating decisions. For all but the most straightforward of businesses this is unlikely to be based on the consolidated income statement, which is the claim by issuers that report a single segment but, in fact, can result from confusion over the identification of the CODM.

Comment letter

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