FASB to Review Business Segment Reporting Issues Based on FAF Review

By Frank Byrt

In a March 6 press release, the Financial Accounting Standards Board (FASB) said it will discuss issues raised in a review of its business segment reporting standard, Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, with stakeholders and the SEC to determine whether further review of the standard is warranted.
 
The FASB announcement came in response to the Financial Accounting Foundation (FAF) Post-Implementation Review (PIR) report on adherence to the standard. 
 
Statement No. 131 was issued by the FASB in 1997 to improve the way public companies report financial information about their business segments to help investors and users better understand an organization's activities and prospects for future growth. The statement establishes standards for the way that public companies report information about operating segments in annual and interim financial statements as well as setting standards for disclosures about products and services, geographic areas, and major customers.  
 
FASB said the PIR affirms that, in general, Statement No. 131 achieves its purpose and results in more information being provided about an organization's business activities than the previous standard, because segment information is now better aligned with an organization's internal structure and is more consistent with financial information reported outside the financial statements, thereby enabling investors and users to better understand an organization's activities and prospects for future growth.
 
However, the FAF report noted that there may be room for improvement. 
 
The FAF said some financial statement preparers and accounting practitioners would find additional guidance on certain operational aspects of Statement 131 to be helpful, and that some financial statement users, such as investors, would like additional and comparable information to be presented by segment.
 
"The FASB welcomes the overall conclusion in the PIR report that Statement 131 is working effectively and is providing more information about an organization's business activities than the prior segment reporting standard and enhancing the relevance of segment disclosures," said FASB Chairman Leslie F. Seidman, in FASB'S press release. However, she added, "The report's findings indicate that some stakeholders believe certain operational aspects could be improved with additional guidance."
 
Given those concerns, Seidman said, "FASB will consult with stakeholders to understand the significance of the issues raised and their priority in relation to other potential agenda items. We will also meet with representatives of the [SEC] and the IASB in response to the report's findings and will report back to the FAF Trustees and the FAF's Oversight Committee as progress is made." 
 
The IASB is also conducting a PIR of IFRS 8, Operating Segments, and the FASB said it thinks that any new plan to undertake a separate project to review or amend Statement 131 as a result of the two PIRs should be coordinated with the IASB to maintain a converged approach to segment reporting.
 

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