Step 1 Identify operating segments

This is the starting point to identify operating segments.

Ultimate goal is that an entity discloses useful 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 environments in which it operates.

Take a look over here to see a descriptive explanation of an operating segment.

Go to STEP 2.

These are the reportable segments to be disclosed

An entity shall 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 environments in which it operates.

To give effect to this principle, an entity shall disclose the following for each period for which a statement of comprehensive income is presented:

  1. general information;
  2. information about reported segment profit or loss, including specified revenues and expenses included in reported segment profit
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Operating segments – Matrix structured entities

Matrix-structured entities use judgment to determine their operating segments. Such entities should consider the importance of the factors that have led to the matrix structure (it did not happen without a sound business reason!!).

How are operating segments determined?

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:

Can a discontinued operation be an operating segment?

A discontinued operation can meet the definition of an operating segment if:

  • it continues to engage in business activities;
  • the operating results are regularly reviewed by the CODM; and
  • discrete financial information is available to facilitate the review.

Can a R&D function be an operating segment?

As long as discrete information is reviewed by the CODM. Typically, an entity’s research and development (R&D) function is a vertically integrated operation (see Operating segments – Vertically integrated operation), in which the R&D activities serve as an integral component of the entity’s business. The definition of operating segment envisages that part of an entity that earns revenue and incurs expenses relating to transactions with other components of the same entity may still qualify as an operating segmentContinue reading

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.

Operating segments – Cost centers

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.

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.

What are operating segments?

Most entities will be able to identify their operating segments easily by reference to the definition. However, when this is not the case, for example if the chief operating decision maker (CODM) uses more than one set of segment information, other factors may enable the operating segments to be identified.