Accounting Standards Board
Aldwych House, 71-91 Aldwych, London WC2B 4HN
Telephone: 020 7492 2300
Fax: 020 7492 2301
www.frc.org.uk/asb
Kil-Woo Lee
Project Manager
International Accounting Standards Board
30 Cannon Street
London. EC4M 6XH
CL 10
27 June 2016
Dear Kil-Woo,
Re:
ED 8 Operating Segments
This letter sets out the ASB’s comments on the above ED. The ASB supports the
‘management approach’ for defining and reporting operating segments as outlined
in the ED. We agree that users of financial reports will benefit from an enhanced
insight into the approach taken to managing the business, which will be of positive
benefit to them. We also support the reconciliation required.
That said we do not believe the use of the ‘management approach’ using
management’s own internal reporting data should be made mandatory. Instead we
would prefer that a choice of using either, the ‘management approach’ to the
reporting and measurement of operating segments, or the approach currently used
under IFRS be allowed.
Please refer to the appendix to this letter for our specific answers to the questions
outlined in the ED.
Yours sincerely
Ian Mackintosh
Chairman, Accounting Standards Board
DDL: 020 7 492 2434
The Accounting Standards Board Limited is a company limited by guarantee
Registered in England number 02526824. Registered Office: As above
A part of
the Financial Reporting Council
APPENDIX
RESPONSE TO SPECIFIC QUESTIONS IN ED 8 OPERATING SEGMENTS
QUESTION 1 – Adoption of the management approach SFAS 131
The draft IFRS adopts the management approach to segment reporting set out
in SFAS 131 Disclosures about segments of an Enterprise and Related Information
issued by the US Financial Accounting Standards Board.
Is this approach to segment reporting appropriate? If not, why not? What, if
any, alternative approach would you propose?
We agree that the ‘management approach’ to the defining or identification of
segments and the reporting of operating segments is appropriate.
That said we do not believe the approach should be mandatory. We believe
there should be a choice as to whether the reporting of operating segments
should be done using the management approach or the approach currently
adopted under IFRS.
QUESTION 2 – Divergence from SFAS 131
The wording of the draft IFRS is the same as that of SFAS 131 except for
changes necessary to make the terminology consistent with in other IFRSs.
Do you think that the draft IFRS should depart from the management
approach in SFAS 131 by setting requirements for:
(a)
the measurement of specified items or
(b)
the disclosure of specified amounts that might otherwise not be given?
If so, identify the requirements you would add and indicate what you see as
the relative costs and benefits of any such requirements.
We believe that the draft IFRS should not depart from the management
approach in SFAS 131 by setting additional requirements as outlined in (a).
For (b) it is difficult to envisage what ‘disclosure of specified amounts’ are
being referred to. So without evidence on this issue, we do not see a need for
the draft IFRS to depart from SFAS 131.
However we do believe that the ED should not be mandatory. Please refer to
our answer to question 1.
QUESTION 3 – Scope of the standard
The existing standard IAS 14 requires entities whose equity or debt securities
are publicly traded and entities that are in the process of issuing equity or
debt securities in public securities markets to disclose segment information.
The draft IFRS extends the scope to include also entities that hold assets in a
fiduciary capacity for a broad group of outsiders.
Do you agree with the scope of the draft IFRS? If not, why not?
We agree with the broadening of the scope of the standard to include entities
that hold assets in a fiduciary capacity for a broad group of outsiders, but
believe an explanation for the reason for the extension to the scope should be
contained in the basis of conclusions of the final standard.
QUESTION 4 – Level of reconciliations
The draft IFRS requires an entity to provide, for specified items,
reconciliations of total reportable segment amounts to amounts recognised by
the entity in accordance with IFRSs. It does not require such reconciliations
for individual reportable segments.
Do you agree with the level of reconciliations required in the draft IFRS? If
not, indicate what you see as the relative costs and benefits of any other level
of reconciliation.
We agree with the level of reconciliations required in the draft IFRS.
QUESTION 5 - Geographical information about assets.
The draft IFRS requires an entity to disclose geographical information about
non-current assets excluding specified items. It does not require disclosure of
geographical information about non-current assets excluding specified items.
It does not require disclosure of geographical information about total assets.
Do you agree with the requirement to disclose geographical information
about non-current assets excluding specified items? If not, for which assets
would you require geographical information to be given?
We agree that the draft IFRS should require disclosure of geographical
information about non-current assets excluding specified items. We believe
that this information is sufficient for the user and any additional geographical
information may be onerous to produce for the preparer and the benefits to
the user would be negligible.
We are concerned with the wording used in paragraph (b) page 21.
‘(i) located in the entity’s country of domicile and (ii) located in all foreign
countries in total …’
The above would be helpful when a large proportion of a company’s business
is carried out in its country of the domicile. However there are many
circumstances where the country of domicile has only a very small proportion
of the company’s business and in these cases the information required would
not be very relevant. It may be more appropriate to re-phrase and suggest;
‘located in the country of the entity’s principal activities and (ii) located in all
other countries in total……’
QUESTION 6 – Consequential amendments to IAS 34 Interim Financial
Reporting
The draft IFRS requires an entity to disclose more segment information in
interim financial reports than is currently required, including a reconciliation
of the total of the reportable segments’ measures of profit or loss to the
entity’s profit or loss.
Do you agree with the consequential amendments made to IAS 34? If not,
what not?
We agree with the consequential amendments made to IAS 34. We believe
that the additional segment information needed for interim reports should not
increase costs for the preparer of financial statements unduly since the
information to enable this process should already in place.
Furthermore we believe that additional disclosures for IAS 34 Interim
Financial Reporting would be consistent with ED 8 Operating Segments and
would be of additional benefit to the user.