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IFRS 8 Operating Segments

International Financial Reporting Standard 8

Overview of IFRS 8

  • Issued: in 2006; followed by amendments
  • Effective date: 1 January 2009
  • What it does:
    • It prescribes the information that an entity must disclose about its:
      • Operating segments;
      • Products and services;
      • Geographical areas in which it operates; and
      • Its major customers.
    • It defines operating segments;
    • It prescribes the conditions for the segments to be reportable.

Main Rules of IFRS 8

Definition of operating segment

Operating segment is a component of an entity:

  • that engages in business activities from which it may earn revenues and incur expenses (including internal revenues with other segments of the same entity);
  • whose operating results are reviewed regularly by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and
  • for which discrete financial information is available.

 

Who must apply IFRS 8?

Each entity:

  • whose debt or equity instruments are traded in a public market; or
  • that files, or is in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of trading its instruments on a public market.

This applies to both individual (separate) financial statements and consolidated financial statements.
 

Which segments must be reported (are reportable)?

Not every single identified segment is reportable.

If one segment, or aggregated segments based on aggregation criteria, meet at least ONE quantitative threshold, it must be reported separately:

  1. The segment's total revenue (including external and intersegment) is 10% or more of the total combined revenue of all operating segments (careful - not total entity's revenue); or
  2. The absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of
    • the combined reported profit of all operating segments that did not report a loss; and
    • the combined reported loss of all operating segments that reported a loss; or
  3. Its assets are 10% or more of the combined assets of all operating segments.

However, even if a segment does not meet any of the above thresholds, management can still decide to present it separately.
 

Few more rules on reportable segments

  • If the total external revenue reported by operating segments constitutes less than 75% of the entity's revenue, additional operating segments must be identified as reportable segments until at least 75% of the entity's revenue is included in reportable segments.
  • Information about other business activities and operating segments that are not reportable shall be combined and disclosed in an "all other segments" category.
  • If the number of reported segments exceeds 10, then the entity should assess whether it is practical to report them all separately and whether the information is too detailed.
  • If the management identifies new reportable segment based on quantitative thresholds in the current reporting period, the comparative information for the previous reporting period should be restated in order to disclose the new segment separately also in the comparative period.

 

What information to disclose?

Once the segment has been identified as reportable, the entity must disclose the following information:

  1. General information:
    • Factors used to identify reportable operating segments;
    • Judgements used in applying the aggregation criteria;
    • Types of products and services generating revenues.
  2. Information about profit or loss, assets and liabilities
    • Measurement of these amounts shall be on the same basis as reported to chief operating decision maker;
    • On top of the total amounts of profit or loss, assets and liabilities, the entity shall present the information about specified revenues and expenses (revenues from external customers, internal revenues, depreciation and others);
    • Entity should provide the explanation of the measurement basis, including the explanation of nature of differences between the amounts reported per segments and total entity's amounts
  3. Reconciliations
    The entity should reconcile total amount per operating segments with total amount reported in the entity's financial statements for:

    • Revenues;
    • Profit or loss;
    • Assets;
    • Liabilities;
    • Other material information.
  4. Entity-wide information
    • Information about products and services;
    • Information about geographical areas, namely:
      • Revenues from external customers (in the country of domicile and in foreign countries;
      • Certain non-current assets(in the country of domicile and in foreign countries;
    • Information about major customers

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