IFRS Converges to U.S. GAAP on Segment Reporting
As part of the convergence effort between IFRS and U.S. GAAP, the International Accounting Standards Board published IFRS 8, Operating Segments, which became effective Jan 1. IFRS 8 supersedes IAS 14, Reporting Financial Information by Segment, and closely resembles the "through the eyes of management" approach of FASB Statement no. 131, Disclosures about Segments of an Enterprise and Related Information. IFRS 8 applies to the individual financial statements of an entity and the consolidated financial statements of a group with a parent (a) whose debt or equity instruments are traded in a public market or (b) that files, or is in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market. Reportable segments are operating segments, or aggregations of operating segments, that meet or exceed one of several quantitative thresholds; smaller segments may be optionally disclosed. Under IAS 14, dual segment classifications were required--by both business and geographic area--with the primary typology determined by the predominant driver of the reporting entity's risks and returns. Under IFRS 8, operating segments may be defined by product, geography or other attributes--consistent with management's decision-making processes. IFRS 8 allows for the discrete reporting of a component of an entity that sells primarily or exclusively to other operating segments of the entity so long as the entity is actually being managed consistent with that strategy. This means that vertically integrated operations may be composed of several segments for the purpose of IFRS 8. The principal mode of disclosure is governed by the concept of operating segments (a) that engage in business activities from which they may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), (b) whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance, and (c) for which discrete financial information is available. [ILLUSTRATION OMITTED] This so-called "management approach" is so strictly interpreted under IFRS 8 that the amounts of each reportable operating segment item must be the same measure reported to the chief operating decision maker for the purposes of allocating resources to the segment and assessing its performance. …