ED 22 Definition of a Segment
Amendment to the Definition Proposed in ED17 Segment
Reporting
Comments from the Association of Chartered Certified Accountants
February 2002
ACCA welcomes the opportunity to comment on Exposure Draft 22: Definition of a Segment: Amendment to the Definition Proposed in ED17 Segment Reporting. These comments have been prepared in consultation with members of ACCA's Public Sector Technical Issues Committee, a group of experienced accountants working in the public sector.
In recognition of the fact that segments constructed for internal reporting purposes will not always be appropriate for external reporting purposes, ACCA agrees with the change to the definition of a segment proposed in Exposure Draft 22 (the ED). We believe, however, that this change should allow flexibility in both directions. Public sector entities should, where appropriate, report on segments in their general purpose financial reports when such segments have not been used for internal reporting purposes. In addition, there may also be circumstances when segments constructed for internal reports will not be appropriate for inclusion in general purpose financial reports.
ED 17 provides an example of segmental reporting for an education authority as an Appendix. This shows a general purpose financial report which includes four segments: primary/secondary, tertiary, special and other services. In many education authorities, internal financial reports will be produced that provide much greater disaggregation of the financial aspects of the authority's affairs. For example, there may be occasions when financial information is provided to the governing body of the authority for each educational institution and even for different services within a single institution.
The experience of segmental reporting in local authorities which are required to account separately for their housing revenue account has shown the extent of the costs of this type of exercise. These costs must always be taken into account when considering which segments should be used in general purpose financial reports. This is recognised in ED17 which says that the "balance between benefit and cost is a pervasive constraint" (Appendix 3, page 51).
For these reasons, we believe that the explanation of the definition of a segment, contained in paragraphs 11 to 21 of ED 17, should be amended. We believe that explicit mention should be made of the need to balance the costs and benefits of including segments in general purpose financial reports. We also believe that the first part of paragraph 11 should be amended to read (added words in bold):
"Under this Standard, public sector entities will identify as separate segments each clearly identifiable activity or group of activities for which information is reported, for each accounting period, to the governing body (particularly the supervisory non-management members of that body, if any) and the most senior manager of the entity for the purpose of evaluating the entity's overall past performance and for making broad decisions about the future allocation of resources."
We hope that these comments will help in the development of an effective IPSAS on Segment Reporting. Please do not hesitate to contact me if you have any questions or queries about this response.