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Accounting For Business Combinations: Financial Reporting

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Discuss about the Accounting For Business Combinations for Financial Reporting.




According to AASB 8, the purpose of the segment reporting of a business information is to aid the users of financial statement in making better understanding post analysis and better assessment of the enterprise’s performance both past and future relating to its various segments.

Segment reporting, therefore, helps the stakeholders of the business including the users like investors in having a better understanding of the business’s performance; detailed assessment of the risks and returns relating to enterprise true and fair presentation; and making smart as well as informed investment judgments as a whole (Kang and Gray, 2013). On the other hand, detailed presentation of segment-wise information may prove to be detrimental and misleading at times to the investors and users with lack of understanding of a financial aspect of business information, failing to understand the wholesome view based on the fragmented information.

The considerable cost has to be incurred for development, preparation and providing of segment reporting, in terms of the costs of collection of information, processing of information, audit and spreading of the final segmented information, which will depend on the existing management control system. This may mostly attract foreign, competitor’s, governmental and investor’s scrutinizing efforts, which may actually outweigh the cost.

The management approach means external reporting purposes of entity’s business and geographical segments which may need reporting of segment financial information constant with the ways of management of businesses, looking to their organization as well as management structure along with its internal financial reporting system.

The adoption of this approach is based on the way of organization of segments by the management within the public entity for operating decision making and performance assessment in a cost-effective as well as timely manner (Choudhary and Ghorai, 2016). This also provides users to see the financials from the management’s point of view, resulting in better communication coordination of future decisions on prospective future plans.

Well, segment reporting may result in a lot of private information disclosure to its users and competitors. This may reveal to the public at large including the competitors as well the government, the more profitable segments which may result in more stringent competitive rivalry strategic tantrum from competitors and more indulgence of compliance regulations from governmental departments (Kang and Gray, 2013). The lower performing segments may even make the picture of the business little unattractive in eyes of investors, more negotiable bids from business dealings and fall in entity’s stock prices.

Where segment reporting deals with the presentation of financial information relating to different product, services or geographical areas of a business, consolidated accounting presents information of various subsidiaries, joint ventures, associates of a business as one (Kang and Gray, 2013). AASB 8 presents financial information a fragmented and detailed manner whereas AASB 10 reports information of parent with its subsidiaries as a whole portraying a single picture.

It cannot be said that presentation of both segment reporting and consolidation accounts in the same financial report is paradoxical since both serve a different purpose for different users. Assessment of both forms of information is needed for an investor to make an informed decision (Birt and Shailer, 2011). The stakeholders will be in a better position for decision making when they have details of various segments and their performance in addition to combined financial data of parent business and its several subsidiaries and joint ventures.



Global Value Fund Limited (GVF) is an investment company is engaged in making investments in worldwide securities. The establishment of the company was with a vision to provide stockholders with an prospect of making investment in in international financial markets. They do this by creating a judiciously built portfolio of financial assets which were trading at a discount in comparison to their underlying value, which is their principal activity (Bugeja, Czernkowski and Moran, 2015). The Company has appointed an investment manager named Metage Capital Limited, specializing in assets trading purchase at a discount to their intrinsic value, by making use of proprietary systems and strategies, at hand at the time of purchase. The portfolio comprises mostly of equities and closed-ended funds, listed on various international exchanges and cash deposits denominated in foreign and domestic currencies. The approach of the companies is to deliver higher risk-adjusted returns in comparison to outmoded methods of international equity investment.

The Company’s Annual Report for the year ended 30 June 2016, reports that it has a single reportable segment. Global Value Fund Limited (GVF), is engaged in investment activities only. GVF derives revenue from the sale of its investments, dividend income and interest income, with foreign exposure due to investment in companies operating internationally (Global Value Fund Limited. Annual Report for the year ended 30 June 2016, 2016).

The annual report disclosing information about segment revenue, expense, assets, and liabilities, is in a consistency with disclosure requirement relating to operating segment and reportable segment stated in AASB 8 (Katselas, Birt and Kang, 2011). Since the Company has a single reportable segment, it discloses all the revenue that is generated gains on disposal of assets, market value movement of investments, foreign exchange movement, interest income and dividend income. The company has subsequently made disclosure of expenses in relation to revenue in its statement of Profit and Loss and other comprehensive income (Global Value Fund Limited. Annual Report for the year ended 30 June 2016, 2016). In addition, the company discloses its assets including cash, trade receivables, financial assets and deferred tax assets; and liabilities including trade payables, current tax liability and deferred tax liability.

There might occur differences in a total of reportable segments from consolidated figures due to alterations in accounting procedures and apportionment of costs ocurred centrally. Fluctuations from previous periods in the methods of measurement and the effect of those changes shall be disclosed. Therefore, IFRS 8 necessitates reconciliation among a total of the reportable segment revenues, total assets, total profit or loss, and other amounts of which disclosure has been provided for reportable segments to the consequent amounts in the final financial statements (Kang and Gray, 2013). An audit trail among the managerial accounts and the consolidated financial information will suffice a lot of requirement of differences.



Birt, J. and Shailer, G., 2011. Forecasting confidence under segment reporting. Accounting Research Journal, 24(3), pp.245-267.

Bugeja, M., Czernkowski, R. and Moran, D., 2015. The impact of the management approach on segment reporting. Journal of Business Finance & Accounting, 42(3-4), pp.310-366.

Choudhary, R.P. and Ghorai, S., 2016. Segment Reporting Practices in India: Impact of IFRS 8 During Transition Period. The MA Journal, 51(10), pp.35-49.

Global Value Fund Limited. Annual Report for the year ended 30 June 2016. 2016. [Online]. Available through <>. [Accessed on 12th October 2017].

Kang, H. and Gray, S.J., 2013. Segment reporting practices in Australia: Has IFRS 8 made a difference?. Australian Accounting Review, 23(3), pp.232-243.

Kang, H. and Gray, S.J., 2013. Segment reporting practices in Australia: Has IFRS 8 made a difference?. Australian Accounting Review, 23(3), pp.232-243.

Katselas, D., Birt, J. and Kang, X.H., 2011. International firm lobbying and ED 8 operating segments. Australian Accounting Review, 21(2), pp.154-166.


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