IFRS 8 Operating Segments Summary
(Source https://www.bdo.global/en-gb/services/audit-assurance/ifrs/ifrs-at-a-glance)
Or in some more detail…….
CORE PRINCIPLE
The core principle of IFRS 8 is that an entity is to disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environment in which it operates.
IFRS 8 specifies the use of a ‘through the eyes of management’ approach to an entity’s reporting of information relating to its operating segments in annual financial statements.
SCOPE
IFRS 8 applies to entities whose debt or equity instruments are traded in a public market or files (or in the process of filing) its consolidated or separate financial statements with a securities commission or equivalent regulator.
An overall summary of the approach required by IFRS 8 is shown below:
Identify the chief operating decision maker (CODM) | IFRS 8 Operating Segments Summary | |
⇓ | IFRS 8 Operating Segments Summary | |
Identify which components of the business are operating segments | IFRS 8 Operating Segments Summary IFRS 8 Operating Segments Summary | |
⇓ | IFRS 8 Operating Segments Summary | |
Identify which operating segments require separate disclosure as reportable segments | ⇒ | Disclose segment information using measures reported to management and reconcile to financial statement amounts |
⇓ | IFRS 8 Operating Segments Summary | |
Provide entity-wide disclosures | IFRS 8 Operating Segments Summary |
An entity may comprise of one or more operating segments. Individual operating segments may separately be reportable segments or they may be aggregated to form either a single or multiple reportable segments.
The size and extent of a reportable segment is determined by the aggregation criteria and quantitative thresholds.
OPERATING SEGMENTS
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 chief operating decision maker for resource allocation decision making purposes and performance assessment, and
- for which discrete financial information is available
An operating segment may sell primarily or exclusively to other operating segments of the business, or it may engage in business activities for which it has yet to earn revenues; e.g. start-up operations.
(Note: Not every part or function of an entity is an operating segment or forms part of an operating segment; e.g. corporate headquarters, functional departments, post-employment benefit plans. Some of the corporate functions are not revenue earning or on an incidental basis, hence they are not operating segments.)
Chief Operating Decision Maker
The term ‘chief operating decision maker’ (CODM) 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 CODM of an entity is its chief executive officer or chief operation officer but, for example, it may be a group of executive directors or others.
REPORTABLE SEGMENTS
Aggregation criteria
Operating segments often exhibit similar long-term financial performance if they have similar economic characteristics.
Two or more operating segments may be aggregated into a single reportable segment where they are similar in the following respects:
- the nature of the products and services
- the nature of the production process
- the type or class of customer for the products / services
- the distribution methods relating to the products / services
- the nature of regulatory environment
Quantitative thresholds
An entity shall report as a separate reportable segment information about an operating segment that has either:
- reported revenue, including both external and inter segment sales or transfers, is 10 per cent or more of combined revenue of all operating segments
- reported profit or loss is 10 per cent 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.,
- assets are 10 per cent or more of the combined assets of all operating segments
An entity may combine information about operating segments that do not meet the quantitative thresholds with information about other operating segments that do not meet the quantitative thresholds to produce a reportable segment only if the reporting segments have similar economic characteristics and share a majority of the aggregation criteria listed above.
If the total external revenue reported by operating segments constitutes less than 75 per cent of the entity’s revenue, additional operating segments are identified as reportable segments (even if they do not meet the criteria above) 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 separately from other reconciling items in the reconciliations required by paragraph 28. The sources of revenue included in the “all other segments” category shall be disclosed.
Measurement
The amount of each segment item reported shall be the measure reported to the CODM for the purposes of making decisions about allocating resources to the segment and assessing its performance.
Restatement of previously reported information
If an entity changes the structure of its internal organisation in a manner that causes the composition of its reportable segments to change, the corresponding information for earlier periods, including interim periods, shall be restated unless the information is not available and the cost to develop it would be excessive.
DISCLOSURE CHECKLIST
IFRS | REQUIREMENT | Yes, No, n/a | Explanation (if required) |
IFRS 8.20 | Has information been disclosed to enable users of the financial statements to evaluate the nature and financial effects of the business activities in which the entity engages and the economic environments in which it operates? | IFRS 8 Operating Segments Summary IFRS 8 Operating Segments Summary IFRS 8 Operating Segments Summary | |
IFRS 8.21 | To give effect to the required disclosure at IFRS 8.20, has the entity prepared a reconciliation of amounts in the Statement of Financial Position for reportable segments to the amounts in entity’s Statement of Financial Position for each date at which a Statement of Financial Position is presented? | IFRS 8 Operating Segments Summary IFRS 8 Operating Segments Summary IFRS 8 Operating Segments Summary | |
GENERAL INFORMATION | |||
IFRS 8.22 | Has the entity disclosed the following general information:
| Chief Operating Decision MakerChief Operating Decision MakerChief Operating Decision MakerChief Operating Decision MakerChief Operating Decision Maker Chief Operating Decision MakerChief Operating Decision MakerChief Operating Decision MakerChief Operating Decision Maker | |
INFORMATION ABOUT PROFIT OR LOSS, ASSETS AND LIABILITIES | |||
IFRS 8.23 | Has the entity reported a measure of profit or loss for each reportable segment? A report of total assets and/or liabilities for each reportable segment is only required if it is regularly provided to the chief operating decision maker. Has the entity also disclosed the following about each reportable segment if the specified amounts are included in the measure of segment profit or loss reviewed by the chief operating decision maker, or are otherwise regularly provided to the chief operating decision maker, even if not included in that measure of segment profit or loss:
An entity shall report interest revenue separately from interest expense for each reportable segment unless a majority of the segment’s revenues are from interest and the chief operating decision maker relies primarily on net interest revenue to assess the performance of the segment and make decisions about resources to be allocated to the segment. In that situation, an entity may report that segment’s interest revenue net of its interest expense and disclose that it has done so. | ||
IFRS 8.24 | Has the entity disclosed the following about each reportable segment if the specified amounts are included in the measure of segment assets reviewed by the chief operating decision maker or are otherwise regularly provided to the chief operating decision maker, even if not included in the measure of segment assets:
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IFRS 8.27 | Has the entity provided an explanation of the measurement of segment profit or loss, segment assets and segment liabilities for each reportable segment? At a minimum, the following is disclosed:
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IFRS 8.28 | IFRS 8.28 Has the entity provided reconciliations of the following:
All material reconciling items shall be separately disclosed and described. | ||
ENTITY-WIDE DISCLOSURES | |||
IFRS 8.32 | Has the entity reported the revenues from external customers for each product and service, or each group of similar products and services, unless the necessary information is not available and the cost to develop it would be excessive? The amounts of revenues reported are based on the financial information used to produce the entity’s financial statements. | IFRS 8 Entity wide disclosures IFRS 8 Entity wide disclosures IFRS 8 Entity wide disclosures IFRS 8 Entity wide disclosures IFRS 8 Entity wide disclosures | |
IFRS 8.33 | Has the entity reported the following geographical information, unless the necessary information is not available and the cost to develop it would be excessive:
If assets or revenues in an individual foreign country are material, those assets or revenues shall be disclosed separately. | IFRS 8 Reportable segments IFRS 8 Reportable segments IFRS 8 Reportable segments IFRS 8 Reportable segments IFRS 8 Reportable segments IFRS 8 Reportable segments IFRS 8 Reportable segments IFRS 8 Reportable segments IFRS 8 Reportable segments IFRS 8 Reportable segments IFRS 8 Reportable segments
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IFRS 8.34 | Has the entity disclosed information about the extent of its reliance on its major customers? If revenues from transactions with a single external customer amount to 10% or more of an entity’s revenues, has the entity disclosed that fact, the total amount of revenues from each such customer and the identity of the segment or segments reporting the revenues? | IFRS 8 Entity wide disclosures IFRS 8 Entity wide disclosures IFRS 8 Entity wide disclosures IFRS 8 Entity wide disclosures |
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