permitting too many alternative interpretations in an attempt to accommodate its di-
verse constituencies. By 1990, the OECD, the International Organization of Securi-
ties Commissions (IOSCO), and a UN working group had recommended that the
IASC incorporate additional disclosure items and correct implementation issues for
IAS 14.^14
While voicing strong support for segment reporting, international analysts’ organ-
izations also indicated there was much room for improvement.^15 Analysts argued
that:
- Many companies hide behind broad definitions arguing they do not have indus-
try segments. - Geographical areas blend too many diverse countries.
- More items of data for each segment should be reported.
- The organizational units by which the business is managed and the segments for
which data are reported are not articulated as important criteria for reporting
segments in financial statements.
Following completion of the IASC’s Comparability Project in the mid-1990s, the
IOSCO announced it would review IAS and consider endorsing the standards for
cross-border listings pending completion of a comprehensive set of core standards.
The IOSCO’s list of core standards included segment reporting. Additionally, as
noted above, the North Americans were revisiting segment reporting. Hence, the time
was right for the IASC to revise IAS 14 and work alongside the United States and
Canada in the interest of international harmonization.
(a) General Objectives of IAS 14R. The objective of IAS 14R is to establish princi-
ples for reporting segmental information to include information about different types
of products and services and different geographic areas in which the enterprise oper-
ates. Segmental information should assist financial statement users to:
- Better understand the enterprise’s past performance
- Better assess the enterprise’s risks and returns
- Make more informed judgments about the enterprise as a whole
(b) Primary Segments under IAS 14R. IAS 14R adopts a two- tier approach and re-
quires information both by business and geographic region.^16 For the identification
of primary segments, IAS 14R utilizes the management approach. However, in con-
trast to the North American standard, the IASC imposed a risk and rewards qualifi-
cation. Each primary segment determined via the management approach must exhibit
similar risk or reward characteristics; otherwise, the groupings are modified based on
the risk and rewards approach.
A business or geographic segment should be considered as a reportable segment if
a majority of its revenue is earned from sales to external customers and:
22 • 14 SEGMENTAL AND FOREIGN OPERATIONS DISCLOSURES(^14) Albrecht and Chipalkatti, 1998.
(^15) McConnel and Pacter, 1995.
(^16) IASC, 1997.