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IFRS Converges to U.S. GAAP on Segment Reporting

IFRS 8 on Operating Segments may resemble FAS 131, but it differs in important ways from IAS 14.

April 2009
by Barry Jay Epstein and Eva K. Jermakowicz/Journal of Accountancy

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, Segment Reporting, 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.

This article has been excerpted from the Journal of Accountancy. Read the full article here.