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ACCA Strategic Professional · Strategic Business Reporting (International) · Presentation and disclosure in financial statements

Brandt plc's finance director proposes to merge a loss-making segment, Segment L, into a profitable segment, although the CODM reviews L's results separately and L exceeds the 10% asset threshold. Which assessment is correct under IFRS 8 and ethical reporting principles?

The proposal is not acceptable. Segment L is reviewed separately by the CODM and exceeds a threshold, and aggregation requires similar economic characteristics, not a wish to hide losses. Doing so would mislead users and breach professional integrity.

  1. AAcceptable, because management may choose the segments that show the best picture
  2. BAcceptable if the segments are in the same country
  3. CNot acceptable, because segments must follow CODM reporting and aggregation requires similar economic characteristics and consistent core principle; hiding losses is misleadingCorrect
  4. DAcceptable if disclosed in a note on accounting policies

Explanation

Operating segments follow internal CODM reporting. Aggregation is allowed only if consistent with IFRS 8's core principle and the segments have similar economic characteristics and similar products, processes, customers, distribution and regulation. Merging to hide losses fails this and raises integrity concerns for professional accountants.

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