DIFFERENCE BETWEEN IFRS AND US GAAP (STILL REMAINING AFTER PROMULGATION OF IFRS 8)

6. DIFFERENCE BETWEEN IFRS AND US GAAP (STILL REMAINING AFTER PROMULGATION OF IFRS 8)

Since IFRS 8 is being promulgated after the signing of the convergence agreement between FASB and the IASB, it was expected that there would be considerable convergence between the US GAAP and IFRS requirements for segmental reporting. While the approach under both the Ac- counting Frameworks has been converged, there still remain three significant differences between US GAAP and IFRS on this subject, namely

(a) Under IFRS, noncurrent assets include intangible assets—but the guidance provided by SFAS 131 appears to restrict the “long-lived” assets referred to in that standard to hard as- sets that cannot be readily removed;

(b) IFRS 8 requires disclosure of a measure of segment liabilities if that measure is provided regularly to the “chief operating decision maker.” Such a disclosure is not required by SFAS 131; and

(c) SFAS 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 its operating segments in accordance with the “core principle.”

Wiley IFRS: Practical Implementation Guide and Workbook

MULTIPLE-CHOICE QUESTIONS

difficult to directly charge to a region. The concerts 1. A group is organized into a number of business

are of two types: popular music and classical music. divisions across the world. The group has two main

What is the appropriate basis for segment reporting in classes of business: insurance and banking. The Man-

this entity?

agement Board receives information from each busi- (a) The segments should be reported by class of ness division on a quarterly basis and wishes to report

business, that is, popular and classical mu- segmental information on the basis of these divisions.

sic.

What should be the basis of the group’s reporting of (b) The segments should be reported by region, the primary segmental information?

so Australasia and Japan would be com- (a) The worldwide business divisions.

bined.

(b) The classes of business. (c) The segment information should be reported (c) The entity should make full disclosures on

as North America and the rest of the world. the basis of the worldwide divisions and the

(d) Segment information should be reported for classes of business.

each of the four different regions. (d) It would depend on the different (or differ-

Answer: (d)

ing) risks and rewards but is likely to be the different classes of business.

5. An entity has split its business segments on the basis of the law governing its different types of busi-

Answer: (d)

ness. Two business segments that the entity has iden- 2. A chemical entity has no overseas sales. The

tified are insurance and banking. Within the banking entity produces different products from the process.

group, several different services are provided: retail The entity sells its product to small businesses, to

banking, merchant banking, and small business advi- larger national businesses, and to multinational enti-

sory service. The insurance entities sell travel insur- ance, health insurance, and property insurance. The

ties. The management of the entity proposed to dis- close just one business segment. Can the entity dis-

entity operates throughout the world in several coun- close just one business segment because it sells all of

tries and continents. What basis should the entity re- its products nationally?

port its segmental information? (a) Yes, IAS 14 will allow the entity to disclose

(a) On the basis of its business divisions. (b) By geographical location.

a single business segment. (b) No, the entity can identify three different

(c) On the basis of the services it offers within sets of customers and should, therefore dis-

those divisions.

close information on that basis. (d) The entity should just show one segment, (c) Yes, even though there are three different

entitled banking and insurance. groups of customers, they all present the

Answer: (c)

same risks to the entity. (d) IAS 14 is silent on this matter.

6. An entity is engaged in the manufacturing indus- try and has recently purchased an 80% holding in a

Answer: (b)

small financial services group. This group does not 3. An entity has created a new market research divi-

meet any of the threshold criteria for a reportable sion that will be financed internally. The entity has

segment. Can the entity disclose the financial services two business segments: domestic electrical goods and

group as a separate business segment? computer products. The segments will not receive any

(a) No, because it does not meet any of the IAS apparent benefits from the new division. Will the new

criteria, it cannot be disclosed as a separate division be disclosed under IAS 14 as a separate busi-

segment.

ness segment? (b) Yes, even though it does not meet the IAS (a) The segment should not be separately re-

criteria, an entity can disclose business seg- ported or combined with the corporate seg-

ments separately if they are a distinguishable ments and should be disclosed as part of the

component.

unallocated items. (c) The entity can disclose only 80% of the re- (b) The new business division should be in-

sults and net assets of the banking group. cluded with the electrical segment.

(d) Because of the disparity in types of business, (c) The new business division should be in-

the group should disclose its segmental in- cluded with the computer segment.

formation on a geographical basis. (d) The new business division should be sepa-

Answer: (b)

rately reported. 7. An entity operates in the gas industry and has

Answer: (a)

four different productive processes within the pro- 4. An entity is in the entertainment industry and

duction cycle. It is essentially a vertically integrated organizes outdoor concerts in four different areas of

business. The entity proposes to disclose segmental the world: Europe, North America, Australasia, and

information regarding each of the four operations. Japan. The entity reports to the board of directors on

Can the entity disclose separately as business seg- the basis of each of the four regions. The management

ments the four operations within the production cy- accounts show the profitability for each of the four

cle?

regions, with allocations for that expenditure which is

Chapter 10 / Segment Reporting (IAS 14)

(a) No, it must show a single segment covering all the various operations. (b) IAS 14 says that it is compulsory to show each different operation separately. (c) IAS 14 encourages voluntary disclosure of the segments, and it is considered to be good practice.

(d) The entity should group together various op- erations and show exploration, production, and chemicals as one segment and retailing as another segment.

Answer: (c)

8. An entity manufactures suits, clothing, bed linen, and various cotton and manmade fiber products. It has several segments, which are reported internally as

Segment

Segments Sales