IASC Revises Two Standards

T he International Accounting Standards Committee published revised standards on business segment reporting and presentation of financial statements. Both standards will be effective for fiscal years beginning on or after July 1, 1998.

Originally, International Accounting Standard (IAS) no. 14, Segment Reporting, required that information be reported for both industry segments—groups of related products and services—and geographical segments. Although this provided users of financial statements with a lot of information, it wasnt what users considered most useful, said Patricia McConnell of Bear Stearns in New York City. McConnell said the revisions provided users with a better definition of industry and geographical segments. The revised IAS no. 14 requires an entity to look to its internal organizational structure and internal report system to identify segments for reporting, said McConnell. The revised standard also requires an entity that does not base segments on groups of related products and services or geography to look to the next lower level of internal segmentation to identify its reportable segments.

Another important change to IAS no. 14 deals with the quantity of information that must be reported for both industry and geographical segments. The revised version provides that one basis of segmentation be primary and the other secondary. Considerably less information would be required to be disclosed for secondary segments, said McConnell.

Other revisions to the segment reporting standard include

  • A standardized definition of segment result.
  • A requirement that segment data follow accounting policies used in the consolidated financial statements.
  • Two-tier disclosure of full segment information for all primary segments.
  • A requirement that segments constitute at least 75% of the enterprise total.
  • An exclusion of all nonpublic companies from applicability.

Presenting financial statements
Revised IAS no. 1, Presentation of Financial Statements, replaces existing IAS no. 1, Disclosure of Accounting Policies; IAS no. 5, Information to be Disclosed in Financial Statements; and IAS no. 13, Presentation of Current Assets and Current Liabilities. The revisions are consistent with the IASC Framework for the Preparation and Presentation of Financial Statements. According to an IASC statement, the revised IAS no. 1 is designed to improve the quality of financial statements by

  • Ensuring financial statements comply with each applicable IAS standard. Departures from IAS requirements will be restricted to rare cases. The IASC will monitor instances of noncompliance and will issue new guidance when appropriate.
  • Providing guidance on the overall structure of financial statements. This includes minimum requirements for each primary statement, accounting policies and notes and illustrative appendixes.
  • Establishing practical requirements on issues such as materiality, consistency, going concerns, the selection of accounting policies when no standard exists and the presentation of comparative information.

There also is a new requirement for a primary financial statement that shows gains and losses not presented in the income statement. This revision is in response to users requests that performance information be measured more comprehensively than it has been in the past. According to the IASC summary, the new statement may be presented either as a traditional equity reconciliation (in column form) or as a statement of performance on its own.

The revised standard no. 1 applies to all enterprises reporting in accordance with international accounting standards, including banks and insurance companies.

Copies of revised IAS no. 1 and revised IAS no. 14 are available for $25 each by contacting the IASC by phone at 44-171-353-0565, by fax at 44-171-353- 0562 or by mail at 167 Fleet Street, London EC4A, United Kingdom.


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