EU Adaptation of the IFRS 8 Standard on Operating Segments. Bruegel policy contribution, September 21, 2007

The IFRS 8 standard on operating segments was included in the IASB-FASB convergence program in February 2006 and subsequently adopted by the IASB in November 2006, in spite of widespread negative sentiment about it among investors and other users of financial statements, which the IASB should have given attention to but chose to ignore. Compared with what is provided under the existing standard IAS 14, the management approach on which IFRS 8 is based is not accompanied by sufficient safeguards to ensure that segments reflect economic reality and convey a proper understanding of risks. There are no requirements to make segment information consistent with consolidated information, which may negatively impact the value of the former. And geographical information is likely to be lost. The Commission’s Report on IFRS 8 does not provide an adequate basis for informed decision, due to severe methodological flaws and insufficient disclosure of feedback received by the Commission during the consultation phase. The current process which may lead to IFRS recognition in the United States does not provide a convincing argument to adopt IFRS 8 in view of the standard’s shortcomings. To defend the objective of high-quality standards, the European Union should not adopt the current version of IFRS 8.