IFRS 8 Operating Segments

Background

IFRS 8 Operating Segments prescribes guidelines to assess the nature and financial impact of the different business activities wherein the entity engages and the various economic environments in which it operates.

 

IFRS 8 was issued in November 2006 and applies to annual periods beginning on or after 1 January 2009.

 

Objective

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.

 

Scope

• This IFRS will apply to:

(a) the individual or separate financial statements of an entity:

(i) whose debt or equity instruments are traded on a public market (a national or foreign stock exchange or an over-the-counter market, including local and regional markets), or

(ii) that files, or is in the process of filing, its financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market; and

 

(b) the consolidated financial statements of a group with a parent:

(i) whose debt or equity instruments are traded on a public market (a national or foreign stock exchange or an over-the-counter market, including local and regional markets), or

(ii) that files, or is in the process of filing, consolidated financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market.

 

• If an entity that is not required to apply this IFRS elects to disclose segment information that does not comply with this IFRS, it will not describe the information as segment information.

 

• If any financial report comprises both the consolidated financial statements of a parent that is within the scope of this IFRS and the separate financial statements of the parent, the segment information is required only in the consolidated financial statements.

 

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 to make decisions about resources to be allocated to the segment and assess its performance, and
• ·       for which discrete financial information is available.

Any segment wherein the revenue and operating activities are yet to start is also considered as operating segment, for example – Start up operations.

 

Reportable segments

An entity shall report separately information about each operating segment that:

(a) has been identified as operating segment or results from aggregating two or more of those segments, and

(b) exceeds the quantitative thresholds

 

 

Aggregation criteria : Paragraph 12 of the standard outlines that if the segments have similar economic characteristics, and the segments are similar in each of the following respects

then the two or more operating segments may be aggregated into a single operating segment:

(a) the nature of the products and services;

(b) the nature of the production processes;

(c) the type or class of customer for their products and services;

(d) the methods used to distribute their products or provide their services;and

(e) if applicable, the nature of the regulatory environment, for example, banking, insurance or public utilities.

Quantitative thresholds: An entity shall report separately information about an operating segment that meets any of the following quantitative thresholds:

(a) Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments.

(b) The absolute amount of its reported profit or loss is 10 per cent or more of the greater, in absolute amount, of

(i) the combined reported profit of all operating segments that did not report a loss and

(ii) the combined reported loss of all operating segments that reported a loss.

(c) Its assets are 10 per cent or more of the collective assets of all operating segments.

 

If management believes that information about the segment would be useful to users of the financial statements, then the operating segments that do not satisfy any of the quantitative thresholds may be considered reportable, and separately disclosed.

 

Disclosure

An entity shall disclose the following information for each period for which a statement of comprehensive income is presented to allow users of its financial statements to assess the nature and financial effects of the business activities in which it participates and the economic environments in which it Opera:

(a) general information as described in paragraph 22;

(b) information on the profit or loss of the reported segment, including specific income and expenses included in the profit or loss of the reported segment, segment assets, segment liabilities and the basis of the meters; and

(c) reconciliations of total segment income, reported segment profit or loss, segment assets, segment liabilities and other significant segment elements with the entity's corresponding amounts.

 

Measurement

The amount of each item of the reported segment will be measured reported to the person responsible for making operational decisions in order to make decisions about the allocation of resources to the segment and evaluate its performance.

An entity shall provide an explanation of the measures of segment result, segment assets and segment liabilities for each reportable segment. At a minimum, an entity shall disclose the following:

(a) the basis for accounting for any transaction between reportable segments.

(b) the nature of any difference between the reportable segment profit or loss measurements and the entity's profit or loss before income tax expense and income and discontinued operations (if not evident from the reconciliations described in paragraph 28). Those differences could include accounting policies and policies for allocating centrally incurred costs that are necessary to understand the reported segment information.

(c) the nature of any difference between the measurements of the assets of the reportable segments and the assets of the entity (if not evident from the reconciliations described in paragraph 28). Those differences could include accounting policies and policies for the allocation of assets used together that are necessary to understand the information of the reported segment.

(d) the nature of any difference between the measurements of the liabilities of the reportable segments and the liabilities of the entity (if it is not evident from the reconciliations described in paragraph 28). Those differences could include accounting policies and policies for the allocation of liabilities used together that are necessary to understand the information of the reported segment.

(e) the nature of any changes from prior periods in the measurement methods used to determine the reported segment gain or loss and the effect, if any, of those changes in the segment gain or loss measurement.

(f) the nature and effect of any asymmetric allocation to reportable segments. For example, an entity could assign depreciation expense to a segment without allocating the depreciable assets related to that segment.

 

Reconciliations

An entity shall provide reconciliations of following total of the reportable segments to the total of entity’s:

(a) revenues to the entity’s revenue.

(b) measures of profit or loss to the entity’s profit or loss before tax expense (tax income) and discontinued operations.

(c) assets to the entity’s assets.

(d) liabilities to the entity’s liabilities.

 (e) amounts for every other material item of information disclosed to the corresponding amount for the entity

 

Entity‑wide disclosures

Some entity-wide disclosures that are required even when an entity has only one reportable segment, including information about each product and service or groups of products and services.

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