Question

For segment reporting purposes, in US GAAP, an operating segment is a component of a public entity that must have three characteristics. What are these characteristics? What characteristics do operating segments of an entity have in IFRS?

Answer 1

US GAAP requires that an operating segment earns revenue, has its operating results reviewed by the decision maker, and has available discrete financial information. IFRS criteria are similar with an additional quantitative threshold for segment significance.

Step-by-step explanation:

For segment reporting purposes under US GAAP, an operating segment must exhibit three characteristics:

• It engages in business activities from which it may earn revenues and incur expenses.
• Its operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance.
• Its discrete financial information is available.

In contrast, the International Financial Reporting Standards (IFRS) have similar but not identical criteria for defining an operating segment. Under IFRS:

• It derives revenues from sales to external customers or from transactions with other segments of the same entity.
• Its operating results are regularly reviewed by the entity's chief operating decision maker.
• There is a requirement that discrete financial information is available for the segment.
• Additionally, IFRS includes a quantitative threshold to determine if a segment is significant and therefore should be reported separately.