Chapter 21
Operating
Segments
Prepared by
Kent Wilson
Objectives
1. Discuss the objectives of financial reporting
by segments
2. Identify the types of entities within the
scope of IFRS 8
3. Explain and evaluate the controversy
surrounding IFRS 8
4. Identify operating segments in accordance
with IFRS 8
Objectives
5. Distinguish between operating
segments and reportable segments
6. Overview the disclosure requirements of
IFRS 8
Objectives of Financial
Reporting by Segments
IFRS 8 is primarily a disclosure standard relevant
for large organisations that operate in different
geographic locations and/or in diverse businesses
Segment information is designed to assist users of
financial statements:
Better understand the entity’s past performance
Better assess the entity’s risks and returns
Make more informed judgement about the entity as a
whole
Scope
IFRS 8 applies to publicly listed (or soon to
be listed) entity’s
Entities that fall within the scope of IFRS 8
must provide segment information
irrespective or regardless as to whether
consolidated reports are provided
Voluntary disclosure is permissible
A Controversial
Standard
Identifying Operating
Segments
Identifying Reportable
Segments
Key Issues:
The basic criteria and Quantitative thresholds
(10% of Revenues, 10% P/L and 10% of Assets)
Aggregation criteria (A-E) and The 75% threshold
Identifying Reportable
Segments
Identifying Reportable
Segments
Identifying Operating
Segments
Identifying Operating
Segments
Identifying Operating
Segments
Identifying Operating
Segments
Operating segments are defined in IFRS 8
para 5 as a component of an entity:
That engages in business activities from which it earns
revenues and incurs expenses
Whose operating results are regularly reviewed by the
entity’s chief operating decision maker
For which discrete financial information is available
Refer Illustrative Example 21.1 & 21.2
Identifying Reportable
Segments
Disclosure
Less prescriptive/more general than IAS 14
General principle of disclosure in IFRS 8 is that an
entity discloses information to enable users to
evaluate the nature and financial effects of the
business activities in which it engages and the
economic environments in which it operates
Must disclose:
General information
Information about reported segment profit/(loss), segment
assets, segment liabilities and the basis of measurement
Reconciliation of total segment revenue, segment
profit/(loss), segment assets, segment liabilities to
consolidated totals
or Loss, Assets &
Liabilities
Must disclose ‘a measure’ of segment profit/(loss)
Need only disclose ‘a measure’ of total assets & liabilities
if such an amount is regularly reported to the CODM
Additional line items must be disclosed if these items are:
Included in the measure of segment profit/(loss) or assets
Regularly reported to the CODM
IFRS 8 para 23-24 set out the additional line items
required
Detailed disclosures are required about measurement due
to the discretion allowed to management in this area
Measurement
Since management has discretion about
measurement, IFRS 8 para 27 requires disclosure on
how the entity has determined the measures of profit
or loss and assets & liabilities for each segment.
Key issues include:
Transactions between reportable segments
Differences in profit or loss between segment and entity
Differences in asset & liab. values between segment and
entity
Any changes from prior periods
Any asymmetrical allocations
Reconciliations
IFRS 8 requires all of the following reconciliations
to be provided:
Total reportable segment revenue to consolidated revenue
Total reportable segment measure of profit/(loss) to
consolidated profit/(loss) before tax and discontinued operations
Total reportable segment assets to consolidated assets
Total reportable segment liabilities to consolidated liabilities
(only if segment liabilities are reported)
Total reportable segment amounts for every other material item
of information disclosed to the corresponding consolidated total
Entity Wide Disclosures
The following disclosures apply to all
entities subject to IFRS 8:
Information about products and services
Information about geographical areas
Information about major customers
