draining development.pdf - Khazar University

294 Draining Development?the issue—IFRS 8, on segment—do so. IFRS 8, by default, usually onlyapplies to companies quoted on a stock exchange in a jurisdiction thathas adopted IFRSs (as all countries in the EU have done, for example). Itdefines an operating segment as a component of an entity:• that engages in business activities from which it may earn revenuesand incur expenses;• the operating results of which are reviewed regularly by the entity’schief operating decision maker so as to make decisions about theresources to be allocated to the segment and assess its performance;and• for which discrete financial information is available.IFRS 8 requires an entity to report financial and descriptive informationabout the entity’s reportable segments. These are operating segmentsor aggregations of operating segments that account for more than 10 percentof the revenues, profits, or assets of the entity. Smaller segments arecombined until ones of this size are created, supposedly to reduce informationoverload. In practice, this might, of course, hide necessary detail.Required disclosure by reportable segments targets trading data,including profit and loss, assets and liabilities, and limited geographicalanalysis. Such a summary does not, however, show the true level of problemsinherent within IFRS 8, which also allows segment data to be publishedusing accounting rules that are not the same as those used in therest of the accounts and financial statements, meaning, as a result, thatsegment data may be formulated in a way harmful to the appraisal oftransfer mispricing. In addition, IFRS 8 does not require that segmentscover all of the MNC’s activities, meaning some information may beomitted, providing more opportunity for transfer mispricing to be hiddenfrom view.As a consequence, considerable support has developed for an alternativeform of segment accounting called country-by-country reporting,created by the author of this report (Murphy 2009a). Country-bycountryreporting would require an MNC to disclose the name of eachcountry in which it operates and the names of all its companies tradingin each country in which it operates. Currently, these data are usuallyunavailable. Country-by-country reporting would then require publi-