English abstract
International Financial Reporting Standard No. 8 (IFRS 8) was issued by the
International Accounting Standards Board (IASB) in November 2006 and became effective
for periods beginning on or after January 2009. IFRS 8 is issued as a part of the IASB
convergence program with the USA Financial Accounting Standard Board (FASB). IFRS 8
provides guidelines on how segment information should be reported to external users. It
requires segment information to be reported in accordance with the management approach. In
particular, operating segments are to be identified in the same way they are reported to Chief
Operating Decision Makers (CODM). It is worth noting that IFRS 8 replaced International
Accounting Standard No. 14 Revised (IAS 14R). IAS 14R requires reportable segments to be
identified in accordance with the (risk and reward) approach.
There are three main objectives to this study: (i) to evaluate and compare the
disclosure of segment information pre and post the implementation of IFRS 8 for UK listed
companies; (ii) to investigate the impact of the management approach on analysts' earnings
forecast accuracy; and (iii) to investigate the impact of the quality of segments' profit
information on stock market ability to anticipate future changes in earnings. For the purpose
of achieving these research objectives a positivist theoretical framework is implemented. The
three objectives of this study are investigated using two methods; descriptive statistics and
mean difference tests; and regression analysis using Ordinary Least Square (OLS), Fixed
Effect and Tobit regressions.
The findings of this study suggest that the disclosure of segmental information post
the adoption of IFRS 8 has witnessed significant and sizable changes. The comparison of
segment information reporting pre and post IFRS 8 indicates that UK listed companies
provide more disaggregated information post the adoption of IFRS 8. The results show that
the implementation of IFRS 8 has resulted in more segments reported for both Line of
Business (LOB) and Geographical (GEO) segments. The mean number of reported segments
increased from 2.98 to 3.34 for LOB segments and from 4.08 to 4.71 for GEO segments.
Statistical tests show that the increase in the number of geographical segments is statistically
significant. In addition, the analysis documents a statistically significant increase in the
quality (i.e. fineness) of geographical segments disclosed post IFRS 8.
However, in contrast the results also show that post the implementation of IFRS 8 the
number of line items disclosed has decreased for both LOB and GEO segments. The findings
show that the decline in geographical segments' line items is statistically different from zero.
Also, the results reveal that the most significant line item that is no longer provided for
geographical segment is related to earnings/profit information. In addition, the analysis
documents a decline in the quality of segment profit reported by companies post the adoption
of IFRS 8.
With regards to the impact of segmental information on analysts' earnings forecast
accuracy, the results indicate that the adoption of the management approach (IFRS 8), and
reporting finer geographical segments provide financial analysts with a significantly better
insight about future changes in earnings. In addition, the analysis shows that better quality of
segmental earnings disclosure provides financial analysts with a better insight into future
changes in earnings. Moreover, we find evidence that companies which defined their main
operating segments based on line of business characteristics have been perceived by financial
analysts as more informative about future earnings.
With regards to the particular impact of the quality of segmental earnings disclosure
on stock price ability to anticipate and reflect future changes in earnings, the study finds
strong evidence for the impact of quality of segmental profit disclosure on the market ability
to anticipate future changes in earnings. The regression results reveal that when the segmental
profit margin is different from the consolidated margin, the market has better ability to foresee
future change in earnings over short and long term periods. Reporting earnings figures for
both main operating segments and entity-wide segments (mostly geographical) improves
stock price's ability to incorporate future earnings for short term periods (i.e. next year
earnings). In addition the study shows that when segment profit matches the consolidated
income statement the market anticipation power of the next year's earnings is higher.
