Financial Accounting Literature Review

CHAPTER TWO
LITERATURE REVIEW INTRODUCTION
The current chapter highlights the key studies and important research findings relating to the issue of segmental reporting in general and the implementation of IFRS 8 in particular. This review of the literature aims to assist the researcher by identifying the prior work that has been conducted in the area; it also indicates how the current thinking in this research field has evolved and helps to identify the contribution of this topic in relation to previous work done in the area. THEORETICAL FRAMEWORK
The main field of study is on financial accounting and reporting. Hence, for the phenomena being investigated, the researcher will employ one of the most commonly used frameworks for this purpose,

Lee and Tweedie, 1979; Barena and Lakonishok, 1980; Appleyard and Strong, 1984; Berry and Robertson, 2006; Suwaidan et al., 2007; Dunne et al., 2008; Kribat, 2009; Finningham,2010). For example, Hodgson et al. (1992) stated that the traditional stewardship role of financial accounting data was replaced in the 1960s with a greater importance placed on decision making. Recently, Coy et al. (2001) suggested that the notion that stewardship is the primary rationale for accounting has effectively been replaced by a focus on decision usefulness. Standard setters (i.e. IASB and FASB) have also employed decision usefulness theory for their conceptual frameworks when considering that any financial information disclosed should be understandable, reliable, relevant and comparable. Moreover, the subject of the current study (IFRS 8) was issued within a framework that is based on decision usefulness. Therefore, the theoretical framework of this study is based on decision usefulness theory and the rest of the chapter will discuss this theory in

In the early 1970s, the American Institute of Certified Public Accountants (AICPA) established the Trueblood Committee which published the Trueblood Report. This report led to the development of FASB’s conceptual framework during the second half of the 1970s (Belkaoui, 2004). For instance, in 1978, FASB issued Statement of Financial Accounting Concepts (SFAC) No. 1 “Objectives of Financial Reporting by Business Enterprises” (FASB, 1978). This document highlighted why decision usefulness theory had been adopted by FASB. For example, SFAC No. 1 stated that: “The role of financial reporting in the economy is to provide information that is useful in making business and economic decisions, not to determine what those decisions should be… The role of financial reporting requires it to provide even-handed, neutral, or unbiased information. Specifically, SFAC No. 1 details that financial information should be useful for all users especially investors and creditors: “Financial reporting should provide information that is useful to present and potential investors and creditors and other users [including financial analysts, journalist, regulatory authorities and trade unions] in making rational investment, credit, and similar decisions”. According to SFAC No. 1, FASB emphasised the understandability of the financial information, stating that: “the information should