This article is the twenty-first in a series of articles that takes our readers on a journey through International Financial Reporting Standards (IFRS) with a special focus on the standards’ quintessential feature:  they are principles-based.  In this article, we provide an overview of some of the most significant differences between IFRS and U.S. generally accepted accounting principles (GAAP) with regard to operating segments.  Actual differences in the accounting treatment between the two frameworks depend on specific circumstances.

IFRS 8, Operating Segments, is the standard dealing with segment reporting under IFRS, while FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, deals with the same topic under U.S. GAAP.  Because IFRS 8 is the result of a joint short-term convergence project between IFRS and U.S. GAAP, its wording is nearly the same as that of Statement No. 131, except for certain changes needed to make its terminology consistent with that in other IFRS and three other differences:

• The term “long-lived assets”, as that phrase is used in Statement No. 131, implies hard assets that cannot be readily removed, which would appear to exclude intangibles.  Non-current assets as defined in IFRS include intangibles.
• Statement No. 131 does not require disclosure of a measure of segment liabilities.  IFRS 8 requires disclosure of segment liabilities if such a measure is regularly provided to the chief operating decision maker.
• Statement No. 131 requires an entity with a matrix form of organization to determine operating segments based on products and services.  IFRS 8 requires such an entity to determine operating segments by reference to its core principle:  “An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates”.

Both Standards require disclosures about profit or loss and assets, and understanding the terminology and related definitions under U.S. GAAP and IFRS is critical to the proper application of the two frameworks.

For further information, please contact Bob Dohrer (robert.dohrer@rsmi.com) or Marco Marcellan (marco.marcellan@rsmi.com) in our International Assurance Services Group.

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