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Commission Regulation (EC) No 1725/2003 of 29 September 2003 adopting certain international accounting standards in accordance with Regulation (EC)   No 1606/2002 of the European Parliament and of the Council

Content

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This revised International Accounting Standard supersedes IAS 14, reporting financial information by segment, which was approved by the Board in a reformatted version in 1994. The revised Standard became operative for financial statements covering periods beginning on or after 1 July 1998.

Paragraphs 116 and 117 of IAS 36, impairment of assets, set out certain disclosure requirements for reporting impairment losses by segment.

Introduction

This Standard ("IAS 14 (revised)") replaces IAS 14, reporting financial information by segment ("the original IAS 14"). IAS 14 (revised) is effective for accounting periods beginning on or after 1 July 1998. The major changes from the original IAS 14 are as follows:

1. The original IAS 14 applied to enterprises whose securities are publicly traded and other economically significant entities. IAS 14 (revised) applies to enterprises whose equity or debt securities are publicly traded, including enterprises in the process of issuing equity or debt securities in a public securities market, but not to other economically significant entities.

2. The original IAS 14 required that information be reported for industry segments and geographical segments. It provided only general guidance for identifying industry segments and geographical segments. It suggested that internal organisational groupings may provide a basis for determining reportable segments, or segment reporting may require reclassification of data. IAS 14 (revised) requires that information be reported for business segments and geographical segments. It provides more detailed guidance than the original IAS 14 for identifying business segments and geographical segments. It requires that an enterprise look to its internal organisational structure and internal reporting system for the purpose of identifying those segments. If internal segments are based neither on groups of related products and services nor on geography, IAS 14 (revised) requires that an enterprise should look to the next lower level of internal segmentation to identify its reportable segments.

3. The original IAS 14 required that the same quantity of information be reported for both industry segments and geographical segments. IAS 14 (revised) provides that one basis of segmentation is primary and the other is secondary, with considerably less information required to be disclosed for secondary segments.

4. The original IAS 14 was silent on whether segment information must be prepared using the accounting policies adopted for the consolidated or enterprise financial statements. IAS 14 (revised) requires that the same accounting policies be followed.

5. The original IAS 14 had allowed differences in the definition of segment result among enterprises. IAS 14 (revised) provides more detailed guidance than the original IAS 14 as to specific items of revenue and expense that should be included in or excluded from segment revenue and segment expense. Accordingly, IAS 14 (revised) provides for a standardised measure of segment result, but only to the extent that items of revenue and operating expense can be directly attributed or reasonably allocated to segments.

6. IAS 14 (revised) requires "symmetry" in the inclusion of items in segment result and in segment assets. If, for example, segment result reflects depreciation expense, the depreciable asset must be included in segment assets. The original IAS 14 was silent on this matter.

7. The original IAS 14 was silent on whether segments deemed too small for separate reporting could be combined with other segments or excluded from all reportable segments. IAS 14 (revised) provides that small internally reported segments that are not required to be separately reported may be combined with each other if they share a substantial number of the factors that define a business segment or geographical segment, or they may be combined with a similar significant segment for which information is reported internally if certain conditions are met.

8. The original IAS 14 was silent on whether geographical segments should be based on where the enterprise's assets are located (the origin of its sales) or on where its customers are located (the destination of its sales). IAS 14 (revised) requires that, whichever is the basis of an enterprise's geographical segments, several items of data must be presented on the other basis if significantly different.

9. The original IAS 14 required four principal items of information for both industry segments and geographical segments:

(a) sales or other operating revenues, distinguishing between revenue derived from customers outside the enterprise and revenue derived from other segments;

(b) segment result;

(c) segment assets employed; and

(d) the basis of inter-segment pricing.

For an enterprise's primary basis of segment reporting (business segments or geographical segments), IAS 14 (revised) requires those same four items of information plus:

(a) segment liabilities;

(b) cost of property, plant, equipment, and intangible assets acquired during the period;

(c) depreciation and amortisation expense;

(d) non-cash expenses other than depreciation and amortisation; and

(e) the enterprise's share of the net profit or loss of an associate, joint venture, or other investment accounted for under the equity method if substantially all of the associate's operations are within only that segment, and the amount of the related investment.

For an enterprise's secondary basis of segment reporting, IAS 14 (revised) drops the original IAS 14 requirement for segment result and replaces it with the cost of property, plant, equipment, and intangible assets acquired during the period.

10. The original IAS 14 was silent on whether prior period segment information presented for comparative purposes should be restated for a material change in segment accounting policies. IAS 14 (revised) requires restatement unless it is impracticable to do so.

11. IAS 14 (revised) requires that if total revenue from external customers for all reportable segments combined is less than 75 % of total enterprise revenue, then additional reportable segments should be identified until the 75 % level is reached.

12. The original IAS 14 allowed a different method of pricing inter-segment transfers to be used in segment data than was actually used to price the transfers. IAS 14 (revised) requires that inter-segment transfers be measured on the basis that the enterprise actually used to price the transfers.

13. IAS 14 (revised) requires disclosure of revenue for any segment not deemed reportable because it earns a majority of its revenue from sales to other segments if that segment's revenue from sales to external customers is 10 % or more of total enterprise revenue. The original IAS 14 had no comparable requirement.

The standards, which have been set in bold italic type, should be read in the context of the background material and implementation guidance in this Standard, and in the context of the "Preface to International Accounting Standards". International Accounting Standards are not intended to apply to immaterial items (see paragraph 12 of the Preface).

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