Disclosure of operating segments

Disclosure of operating segments – The disclosures regarding operating segments focus on the information that management believes is important when running the business. The disclosure requirements are summarised below.

Information required


General information

  • Factors used to identify the reportable segments. Disclosure of operating segments
  • Types of product/service from which each reportable segment derives its revenue.

Information about the reportable segment; profit or loss, revenue, expenses, assets, liabilities and the basis of measurement

  • A measure of profit or loss and total assets. Disclosure of operating segments
  • A number of specific disclosures, such as revenues from external customers if they are included in segment profit or loss and presented regularly to the CODM. Disclosure of operating segments
  • Explanation of the measurement of the segment disclosures. Disclosure of operating segments
  • The basis of accounting for transactions between reportable segments.
  • The nature of differences between the measurements of segment disclosures and comparable items in the entity’s financial report (for example, accounting policy differences and asymmetrical allocations).


Disclosure of operating segments

  • Totals of segment revenue, segment profit or loss, segment assets and segment liabilities and any other material segment items to corresponding totals within the financial statements. Disclosure of operating segments
Entity-wide disclosures

Disclosure of operating segments

Disclosure of operating segments

Disclosure of operating segments

  • Revenues from external customers for each product and service, or each group of similar products and services.
  • Revenues from external customers attributed to the entity’s country of domicile and attributed to all foreign countries from which the entity derives revenues. Disclosure of operating segments
  • Revenues from external customers attributed to an individual foreign country, if material.
  • Non-current assets (other than financial instruments, deferred tax assets, post-employment benefit assets, and rights arising under insurance contracts) located in the entity’s country of domicile and in all foreign countries in which the entity holds assets.
  • Non-current assets in an individual foreign country, if material. Extent of reliance on major customers, including details if any customer’s revenue is greater than 10% of the entity’s revenue. Disclosure of operating segments

Disclosure of operating segments

Segment disclosures

  • What measure of segment profitability should be reported

When more than one measure of profitability is provided to the CODM, the measure most relied upon by the CODM for assessing performance and deciding on the allocation of resources should be disclosed. When two or more measures are equally relied upon by the CODM, the measure most consistent with those used in measuring the corresponding amounts in the entity’s financial statements should be used.

Additional disclosure may need to be made in some circumstances. An example of this is shown below.

Example – Company A uses two measures of profit

Company A provides the CODM with two measures of profitability by operating segment, which is operating profit and profit before income tax expense. Segment operating profit is determined based on the same measurement principles that are used in the preparation of consolidated operating profit. However, segment profit before income tax expense includes certain internal cost-of-capital charges that are eliminated in determining consolidated profit before income tax expense.

Segment operating profit would be the measure reported externally because this measure is the most consistent with its corresponding amount in the entity’s financial statements.

Additional disclosure would be made for interest income and expense because  that information is included in the profit before income tax expense measure  provided to the CODM.

The measure of segment profitability may differ for each operating segment, as different operating segments may report different measures of profitability to the CODM. IFRS 8 27 requires companies to explain the measurement basis of segment profitability for each reportable segment.

  • Limited asset information reporting to CODM

IFRS 8 25 states that only those assets that are included in the measure of the segment’s assets that are used by the CODM should be reported.

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Scenario Basis of asset measurement
Asset information, although available, is not reported or used by the CODM. No measure of segment asset is disclosed*. Disclose in the notes that asset information is not reported.
Asset information is reported but is not used by the CODM. Asset information is included in other reports provided to the CODM is disclosed even if the information is not used by the CODM.
Asset information reported is limited to cash, inventory and accounts receivables. The sum of the total of those asset items is disclosed as segment assets. The total of the reported segment assets is then reconciled to the total consolidated assets. An explanation of the basis of measurement is disclosed.
The CODM is provided with, and reviews ratios derived from, current asset balances (ie, working capital).
The components that form the ratios are not separately provided.
The specific asset information or working capital amount is not required to be disclosed.
Although it has an asset component, the current asset component is not what is relevant to the CODM’s decision-making. However, an entity may elect to voluntarily report total working capital, and then reconcile that figure to total consolidated working capital.

Non-current assets by geographical area are also required to be disclosed (IFRS 8 33(b)) even if such information is not reviewed by the CODM.

* The Basis of Conclusions to IFRS 8 BC 35 states that a measure of total segment assets should be disclosed for all segments regardless of whether those measures are reviewed by the CODM. In December 2007, the IASB concluded that BC 35 should be changed to state that a measure of segment assets should only be disclosed when such information is provided to the CODM. This change will become effective as part of the IASB’s 2009 Annual Improvements project. Until this change becomes effective, we think it is best for companies to disclose segment assets as required by BC 35.

IFRS 8 25 requires the information presented to be the same basis as it is reported internally, even if the segment information does not comply with IFRS or the accounting policies used in the consolidated financial statements.

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Food for thought

Examples of such situations include segment information reported on a cash basis (as opposed to an accruals basis), and reporting on a local GAAP basis for segments that are comprised of foreign subsidiaries.

Although the basis of measurement is flexible, IFRS 8 27 requires entities to provide an explanation of:

  • the basis of accounting for transactions between reportable segments;
  • the nature of any differences between the segments’ reported amounts and the consolidated totals. For example, those resulting from differences in accounting policies and policies for the allocation of centrally incurred costs that are necessary for an understanding of the reported segment information. The nature of any changes from prior periods in the measurement methods and the effect of those changes should also be disclosed; and
  • the nature and effect of any asymmetrical allocations to reportable segments. For example, an entity might allocate depreciation expense to a segment without allocating the related depreciable assets to that segment.

In addition, IFRS 8 28 requires reconciliations between the segments’ reported amounts and the consolidated financial statements.

  • CODM only receives cash flow information in segment reporting

The entity should only disclose information that is used by the CODM to evaluate segment results and allocate resources; therefore the entity should disclose the cash flow information and then reconcile these cash flows to the entity’s total revenues, profit or loss before tax and total assets.

  • Reassessment of segment reporting

There is no specific guidance in IFRS 8 on what changes trigger a change in an entity’s reportable operating segments. Change in the CODM and/or the information provided to and reviewed by the CODM for the purposes of evaluating performance and allocating resources would impact the identified operating segments. Therefore, at each reporting date management should consider whether the current operating segment disclosure continues to be appropriate.

Determining operating segments is an area of significant judgement and scrutiny, so it is important that entities consider how internal organisational change will impact the identification and measurement of their operating segments.

Management should consider the following when determining its operating segments:

  • Who is the CODM and what is reviewed by the CODM? Disclosure of operating segments
  • Has the CODM changed (ie, have reporting lines changed)? Disclosure of operating segments
  • How has the CODM reporting package changed? Disclosure of operating segments
  • Has the organisational chart changed (ie, acquisition/disposal of business activities)?
  • Has the person the CODM meets with changed?
  • Have there been any changes in the budgeting process, or level at which budgets are set?
  • What is the company communicating to external parties such as investors, creditors and customers?
Something else -   IFRS 8 Operating Segments Summary at the best

Situations that may impact identified operating segments:

  • Entering a new line of business.
  • Line of service versus geography (ie, a company has hired a new CEO and the internal reporting structure is changing from a model of geographical reporting to that of product line reporting).
  • New system and reporting tools (ie, implementation of a new system that includes various reporting tools has enabled the entity to report on and manage its business activities differently).
  • Restatement of segment information after a reorganisation

An entity that changes the structure of its internal organisation in a manner that causes the composition of its reportable segments to change, should restate the corresponding information for earlier periods (including interim periods), unless the information is not available and the cost to develop it would be excessive.

Management should determine, for each disclosure item, whether the information is available and if not, whether the cost to develop it would be excessive. This means that an entity’s disclosures may consist of some comparatives that have been restated and some that have not; disclosures to this effect should be made.

Other examples where restatement is required are shown below.

Scenario Restatement required? Insight
A previously immaterial non-reportable segment becomes material in the current year Yes. Restate prior year to reflect new reportable segments Restatement is required even if it is anticipated that the segment would not meet the 10% threshold in the future (ie, non-recurring event)
A previously reportable segment becomes a non-reportable segment in the current year No. If management views the segment to be of continuing significance, it should continue to report it as a separate reportable segment Information to the effect that it does not meet the quantitative thresholds but is considered to be of significance should be disclosed
Yes. If it is not considered to be of continuing significance, it should not be separately disclosed and the prior year should be restated to conform to the current year’s presentation Disclosure should be made describing the restatement
Initial year of application Yes N/A

IFRS 8 only requires restatement (if practicable) when there has been a change in the composition of the segments resulting from changes in the structure of an entity’s internal organisation. Although restatement is not required, we believe it might be appropriate to show all segment information on a comparable basis to the extent it is practicable to do so. If prior years’ information is not restated, IFRS 8 27(e) nonetheless requires disclosure of “the nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss and the effect, if any, of those changes on the measure of segment profit or loss”.

Disclosure of operating segments

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