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BASIS FOR CONCLUSIONS ON IFRS 8 INTRODUCTION:This Basis for Conclusions summarises the International Accounting Standards Board’s considerations in reaching the conclusions in IFRS 8 Operating Segments. Individual Board members gave greater weight to some factors than to others.

In September 2002 the Board decided to add a short-term convergence project to its active agenda. The project is being conducted jointly with the United States standard-setter, the Financial Accounting Standards Board (FASB). The objective of the project is to reduce differences between IFRSs and US generally accepted accounting principles (US GAAP) that are capable of resolution in a relatively short time and can be addressed outside major projects.

As part of the project, the Board identified differences between IAS 14 Segment Reporting and the US standard SFAS 131 Disclosures about Segments of an Enterprise and Related Information, reviewed academic research findings on segment reporting, in particular relating to the implementation of SFAS 131, and had meetings with users of financial statements.


The requirements of SFAS 131 are based on the way that management regards an entity, focusing on information about the components of the business that management uses to make decisions about operating matters. In contrast, IAS 14 requires the disaggregation of the entity’s financial statements into segments based on related products and services, and on geographical areas.

The requirements of SFAS 14 Financial Reporting for Segments of a Business Enterprise, the predecessor to SFAS 131, were similar to those of IAS 14. In particular, both standards required the accounting policies underlying the disaggregated information to be the same as those underlying the entity information, since segment information was regarded as a disaggregation of the entity information. The approach to segment disclosures in SFAS 14 was criticised for not providing information about segments based on the structure of an entity’s internal organisation that could enhance a user’s ability to predict actions or reactions of management that could significantly affect the entity’s future cash flow prospects.

The Board discussed segment reporting at several meetings with users of financial statements. Most of the users supported the management approach of SFAS 131 for the reasons mentioned in the previous paragraph. In particular, they supported an approach that would enable more segment information to be provided in interim financial reports.

BASIS FOR CONCLUSIONS ON IFRS 8 INTRODUCTION:Consequently the Board decided to adopt the US approach and published its proposals as an exposure draft in ED 8 Operating Segments in January 2006. The deadline for comments was 19 May 2006. The Board received 182 comment letters. After reviewing the responses, the Board issued IFRS 8 in November 2006.


In the Basis for Conclusions on ED 8, the Board noted that the primary benefits of adopting the management approach in SFAS 131 are that:

      (a) entities will report segments that correspond to internal management reports;
        (b) entities will report segment information that will be more consistent with other parts of their annual reports;
        (c) some entities will report more segments; and
                (d) entities will report more segment information in interim financial reports.

    In addition, the Board noted that the proposed IFRS would reduce the cost of providing disaggregated information for many entities because it uses segment information that is generated for management’s use.

    Most respondents to the Exposure Draft supported the adoption of the management approach. They considered the management approach
    appropriate, and superior to the approach of IAS 14. These respondents observed that the management approach for segment reporting allows users to review an entity’s operations from the same perspective as management. They noted that although the IAS 14 approach would enhance comparability by requiring entities to report segment information that is consistent with IFRSs, the disclosures will not necessarily correspond to segment information that is reported to management and is used for making decisions.


    Yet other respondents agreed with the management approach for the identification of segment assets, but disagreed with the management approach for the measurement of the various segment disclosures. In particular, they doubted whether the publication of internally reported amounts would generate significant benefit for investors if those amounts differ from IFRS amounts.

    The Board noted that if IFRS amounts could be prepared reliably and on a timely basis for segments identified using the management approach, that approach would provide the most useful information. However, the Board observed that IFRS amounts for segments cannot always be prepared on a sufficiently timely basis for interim reporting.

    The Board concluded that the advantages of the management approach, in particular the ability of entities to prepare segment information on a sufficiently timely basis for inclusion in interim financial reports, outweighed any disadvantages arising from the potential for segments to be reported in accordance with non-IFRS accounting policies.

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