The IASB issued its Exposure Draft ED 8 Operating Segments for public comments on 19 January 2006. The comment period ended on 19 May 2006 and the IASB received 182 comment letters.

Management approach

Some commentators did not support the management approach (18%) proposed by the Board, instead preferring the IAS 14 approach as the more superior guidance (compared to SFAS 131). Others agreed with the management approach for the identification of segments but not for measurement of the various segment disclosures (19%). Some respondents agreed with the Boards exposure draft (51%). 12% did not comment on this issue. After some discussion, the Board agreed to proceed with the management approach adopted in SFAS 131 for both the identification and measurement of segments.

Scope of the standard - entities that hold assets in a fiduciary capacity for a broad group of outsiders

IAS 14 currently applies only to entities whose equity or debt securities are publicly traded and entities that are in the process of issuing equity or debt in public securities markets. The ED proposed extending the scope to cover also entities that hold assets in a fiduciary capacity for a broad group of outsiders.

Some Board members expressed concern that if the IAS 14 scope is used for the new Standard, entities that are not publicly listed will have competitive advantage over those that are listed as they will not have to provide segment information. Consequently, those Board members preferred to include a 'scope in' covering fiduciary capacity. Others noted that the issue was wider as it affected manufacturing entities as well, not just insurers, c-operatives and similar entities (generally those subject to prudential supervision).

The Board agreed that as a principle, all entities claiming compliance with IFRS should comply with all individual IFRSs, therefore there should be no scope exemption in the Segment Reporting standard. To achieve this, the Board decided to prepare a separate exposure draft to be released at the same time as the exposure draft of the SME standard which will consist of a definition of publicly accountable entities. That separate exposure draft will set out the consequential amendments to the scope of the Segment Reporting standard. Once finalised, all IFRS preparers that are not publicly accountable will be subject to the SME standard (unless they chose to apply full IFRSs) which it is believed, will not require Segment Reporting. By default, all other entities claiming compliance with IFRS will be required to provide segment information.

Scope of the standard - Exemption for separate financial statements

Legal entities within a consolidated group are often set up to comply with particular legal or regulatory requirements, yet the business can often be run on a cross-border/cross-entity basis. As a result, business performance is often not considered at a legal entity level, since it is a largely artificial distinction. Collecting segmental information for such entities, where it will typically not be readily available, is likely to be costly and of little benefit to users and because the information provided would not reflect how the business is run i.e. it is not conducted within the context of that single entity.

After considering the above arguments, the Board agreed to include in the final standard a scope exemption for separate financial statements similar to paragraph 6 of IAS 14.

Competitive harm

Some respondents were opposed to a standard that, in their view, would potentially destroy shareholder value in some instances. They recommended that entities should be exempt from aspects of the standard if disclosure could cause competitive damage. With this approach, they suggested that an entity would be required to explain the reasons on a 'comply or explain' basis.

The Board rejected these arguments and voted unanimously to proceed without a competitive harm exception.