Chief Operating Decision Maker

[IFRS 8 Operating segments] The term ‘chief operating decision maker’ identifies a function, not necessarily a manager with a specific title. That function is to allocate resources to and assess the performance of the operating segments of an entity. Often the chief operating decision maker of an entity is its chief executive officer or chief operating officer but, for example, it may be a group of executive directors or others.


  • Identifying the chief operating decision maker (CODM) can be difficult. Judgements about the components of an entity that are regularly reviewed by the CODM have been challenging and subject to regulatory scrutiny.
  • The regulator has challenged companies about the identification of operating segments and the appropriateness of aggregating operating segments.
  • Companies subject to Sarbanes-Oxley Section 404 requirements may incur additional costs in ensuring that internal processes and systems are sufficiently robust in capturing internal segment information.

What is an operating segment?

An operating segment is a component of an entity:

  • that engages in business activities from which it may earn revenues and incur expenses;
  • whose operating results are regularly reviewed by the entity’s CODM to make decisions about resources to be allocated to the segment and assess its performance; and Chief Operating Decision Maker Chief Operating Decision Maker Chief Operating Decision Maker Chief Operating Decision Maker
  • for which discrete financial information is available.

How are operating segments identified?

There are four key steps. Entities will need to:

  1. Identify the CODM.
  2. Identify their business activities (which may not necessarily earn revenue or incur expenses).
  3. Determine whether discrete financial information is available for the business activities.
  4. Determine whether that information is regularly reviewed by the CODM.

Identifying the CODM and the components that are regularly reviewed by the CODM to make decisions can be difficult. It is also important to reassess regularly the identification of the CODM, particularly following a business reorganisation, acquisition or disposal.

What or who is a chief operating decision maker?

The CODM is a function and not necessarily a person. That function is to allocate resources to, and assess the performance of, the operating segments. It is likely to vary from entity to entity – it may be the CEO, the chief operating officer, the senior management team or the board of directors. The title or titles of the person(s) identified as CODM is not relevant, as long as it is the person(s) responsible for making strategic decisions about the entity’s segments.

Is the CODM always viewed as the highest level of management at which decisions are made?

Typically, yes. In almost every organisation, decisions about the entity’s resource allocation and the assessment of the performance of the entity’s businesses are made at the highest level of management.

Judgement is required. The CODM will vary from entity to entity and it may be the chief executive officer, chief operating officer, senior management team or in some jurisdictions, the board of directors. We believe that a supervisory board function that simply approves management’s decisions would not be the CODM, as it does not allocate resources.

The example below illustrates the importance of appropriately identifying the CODM.

Entity A’s management organization consists of a chief executive officer (CEO) who oversees two vice presidents that are responsible for two separate continental regions, each consisting of multiple countries. If the CODM is identified as the CEO, then the operating segments would be the continental regions overseen by the two vice presidents (segment managers). But, if the CODM is identified as a group consisting of the CEO and vice presidents, the operating segments would be identified at the country—not the continental—level, resulting in a larger number of operating segments (and, quite possibly, a larger number of reportable operating segments) if, for example, none of the identified operating segments meet the aggregation criteria. The identification of the CODM as the CEO or as a group comprised of the CEO and vice presidents in this example rests on whether an individual or a group of individuals makes the decisions about resource allocation and performance assessment.

Chief Operating Decision Maker Chief Operating Decision Maker

Chief Operating Decision Maker

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