IFRS 8 para 8 states that the following factors should be considered when an entity is determining the set of components that constitutes its operating segments:
- The nature of business activities of each component. To the extent that the higher- level segment information is represented by components that contain dissimilar business activities, while the lower level components contain similar business activities, the lower level components may be more representative of the company’s operating segments.
- The existence of managers responsible for each component. It is likely that those components that have individuals responsible for the components’ results (such as a segment manager, business-unit CFO, or vice president) and who are directly accountable to, and maintain regular contact with, the CODM to discuss operating activities, financial results, forecasts, or plans for the segment, are an entity’s operating segments. Segment managers may be responsible for more than one operating segment. IFRS 8 para 9 states that generally, if there is only one set of components for which segment managers are held responsible, that set of components constitutes the operating segments.
- The information provided to the board of directors. The information provided to the company’s board of directors, when not considered to be the CODM, may indicate the level at which
- overall performance is assessed and
- decisions are made about resource allocation to different areas of an entity’s business.
Entities should consider qualitative factors in addition to those outlined above in determining the appropriate operating segments. These should include an assessment of whether the resultant operating segments are consistent with the core principle of IFRS 8 and whether the identified operating segments could realistically represent the level at which the CODM is assessing performance and allocating resources.
The identified operating segments are also expected to be consistent with other information the entity produces, such as press releases, interviews with management, company websites, management discussions and other public information about the entity.