Operating segments – Vertically integrated operation

IFRS 8 defines an operating segment as a ‘component of an entity that engages in business activities from which it may earn revenues and incur expenses’. This recognises that not all business activities earn revenues.

Where transfer prices are charged between an entity’s stages of production (for example, with oil and gas companies), the fact that the transfer prices are not assessed by the CODM would not exempt such activities from being considered operating segments. The operating segments of an oil and gas company may include exploration, development, production, refining and marketing – if the CODM manages the entity in this way.

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