News: ASBJ Issues Exposure Draft on Segment Reporting

On October 4, 2007, the Accounting Standards Board of Japan (ASBJ) issued an exposure draft on segment reporting. The exposure draft is part of the ASBJ's effort toward convergence with IASB standards. Commend period ends on October 19, 2007.

The existing standards on segment reporting requires entities to disclose information disaggregated by business activities and geography. "Risk and reward" approach is adopted.

The ASBJ newly adopted the "management approach," where operating segments are identified based on how the entity is managed internally. An operating segment is defined as a component of entity:

• That relates to operating activities that earn revenues and incur expenses.
• That is reviewed by chief operating decision makers for resource allocation and performance valuation.
• For which, separate financial information is obtainable.

Reportable segments are identified as one or more operating segments. Operating segments are aggregated based on similarities of activities. Certain quantitative criteria should be applied when determining reportable segments.

Information that is required to be disclosed includes:

• Segment profit (or loss) and segment assets (mandatory).
• Segment liabilities, when reviewed regularly by chief operating decision maker.
• External sales, inter-segment sales or transfers, depreciation and amortization, interest income and expenses, proportionate shares of affiliates' income, extraordinary gains and losses, income taxes, and other material non-cash items, when included in segment profit and reviewed regularly by chief operating decision maker.
• Investments in affiliates, additions to tangible and intangible assets, when included in segment assets and reviewed regularly by chief operating decision maker.

Related disclosures are required for each segment as follows:

• Information about goods and services.
• Information about geography.
• Information about major customers.

Impairment losses and amortization of goodwill should be disclosed for each segment regardless of whether they are included in segment profit.