IFRS 8 - Operating Segments
IFRS 8 applies to entities that prepare financial statements, and: whose equity or debt securities are traded in a public market, or that file, or are in the process of filing, financial statements with a securities commission or other regulatory organisation for the purposes of issuing any class of instruments in a public market.
IFRS 8 applies to annual reporting periods beginning on or after 1 January 2009. It may be early adopted, as long as that fact is disclosed in the notes to the financial statements.
IFRS 8 requires disclosures that enable users to evaluate the nature and financial effects of the business activities in which it engages and the economic environment in which it operates. The key concept is that the entity should provide information used by management that will allow users to understand the entity's main activities, where those activities are located and how well those activities are performing.
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 CODM to make decisions about resources to be allocated to the segment and assess its performance; and n for which discrete financial information is available.
Entities will need to:
1 Identify the CODM.
2 Identify their business activities (which may not necessarily earn revenue or incur expenses).
3 Determine whether discrete financial information is available for the business activities.
4 Determine whether that information is regularly reviewed by the CODM.
It is also important to reassess regularly the identification of the CODM, particularly following a business reorganisation, acquisition or disposal.
The CODM is a function and not necessarily a person.
Not all operating segments need to be separately reported. Operating segments are only required to be reportable if they exceed quantitative thresholds. Quantitative thresholds (IFRS 8 para 13) Information on an operating segment should be separately reported if: reported revenue (external and inter-segment) is 10% or more of the combined revenue of all operating segments;
the absolute amount of the segment's reported profit or loss is 10% or more of the greater of:
the combined reported profit of all operating segments that did not report a loss, and the combined loss of all operating segments that reported a loss; n the segment's assets are 10% or more of the combined assets of all operating segments.
Two or more operating segments may be combined (aggregated) and reported as one if certain conditions are satisfied
Two or more operating segments may be combined as a single reportable segment
if: aggregation provides financial statement users with information that allows them to evaluate the business and the environment in which it operates; n they have similar economic characteristics; and they are similar in each of the following respects: the nature of the products and services, the nature of the production processes, the type or class of customer for their products and services, the methods used to distribute their products or provide their services, and the nature of the regulatory environment (ie, banking, insurance or public utilities), if applicable.
After determining the reportable segments, the entity should ensure that the total external revenue attributable to those reportable segments is at least 75% of the entity's total revenue. When the 75% threshold is not met, additional reportable segments should be identified (even if they do not meet the 10% thresholds), until at least 75% of the entity's total external revenue is included in its reportable segments.
The disclosures focus on the information that management believes is important when running the business.
• Factors used to identify the reportable segments.
• Types of product/service from which each reportable segment derives its revenue
• A measure of profit or loss and total assets.
• A number of specific disclosures, such as revenues from external customers if they are included in segment profit or loss and presented regularly to the CODM.
• Explanation of the measurement of the segment disclosures.
• The basis of accounting for transactions between reportable segments.
• The nature of differences between the measurements of segment disclosures and comparable items in the entity's financial report (for example, accounting policy differences and asymmetrical allocations).
• Totals of segment revenue, segment profit or loss, segment assets and segment liabilities and any other material segment items to corresponding totals within the financial statements.
• Revenues from external customers for each product and service, or each group of similar products and services.
• Revenues from external customers attributed to the entity's country of domicile and attributed to all foreign countries from which the entity derives revenues.
• Revenues from external customers attributed to an individual foreign country, if material.
• Non-current assets (other than financial instruments, deferred tax assets, post-employment benefit assets, and rights arising under insurance contracts) located in the entity's country of domicile and in all foreign countries in which the entity holds assets.
• Non-current assets in an individual foreign country, if material. Extent of reliance on major customers, including details if any customer's revenue is greater than 10% of the entity's revenue.