IFRS 8-Operating Segments (summary)
Summary of IFRS 8-Operating Segments
IFRS 8 requires an entity whose debt or equity securities are publicly traded to disclose information to enable users of its financial statements to evaluate the nature and financial effects of the different business activities in which it engages and the different economic environments in which it operates.
It specifies how an entity should report information about its operating segments in annual financial statements and in interim financial reports. It also sets out requirements for related disclosures about products and services, geographical areas and major customers.
Scope
IFRS 8 applies to the separate or individual financial statements of an entity (and to the consolidated financial statements of a group with a parent):
- whose debt or equity instruments are traded in a public market or
- that files, or is in the process of filing, its (consolidated) financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market
Definition of operating segment
Operating segmentΒ is a component of an entity:
- that engages inΒ business activitiesΒ from which itΒ may earn revenues and incur expensesΒ (including internal revenues with other segments of the same entity);
- whose operatingΒ results are reviewedΒ regularly 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.
Which segments must be reported (are reportable)?
Not every single identified segment is reportable.
If one segment, or aggregated segments based on aggregation criteria, meet at leastΒ ONEΒ quantitative threshold, it must be reported separately:
- TheΒ segment’s total revenueΒ (including external and intersegment) isΒ 10% or moreΒ of the total combined revenue of all operating segments (careful – not total entity’s revenue); or
- TheΒ absolute amount of its reported profit or loss is 10% or moreΒ of the greater, in absolute amount, of
- the combined reported profit of all operating segments that did not report a loss; and
- the combined reported loss of all operating segments that reported a loss; or
- ItsΒ assets are 10% or moreΒ of the combined assets of all operating segments.
However, even if a segment does not meet any of the above thresholds, management can still decide to present it separately.
Few more rules on reportable segments
- If the total external revenue reported by operating segments constitutesΒ less than 75%Β of the entity’s revenue,Β additional operating segments must be identifiedΒ as reportable segments until at least 75% of the entity’s revenue is included in reportable segments.
- Information about other business activities and operating segments that are not reportable shall be combined and disclosed in anΒ “all other segments”Β category.
- If the number of reported segmentsΒ exceeds 10, then the entity should assess whether it is practical to report them all separately and whether the information is too detailed.
- If the management identifies new reportable segment based on quantitative thresholds in the current reporting period, the comparative information for the previous reporting period should be restated in order to disclose the new segment separately also in the comparative period.
What information to disclose?
The information that an entity must disclose about its:
-
- Operating segments;
- Products and services;
- Geographical areas in which it operates; and
- Its major customers.
Detail as follows.
Once the segment has been identified as reportable, the entity must disclose the following information:
- General information:
- Factors used to identify reportable operating segments;
- Judgements used in applying the aggregation criteria;
- Types of products and services generating revenues.
- Information about profit or loss, assets and liabilities
- Measurement of these amounts shall be on the same basis as reported to chief operating decision maker;
- On top of the total amounts of profit or loss, assets and liabilities, the entity shall present the information about specified revenues and expenses (revenues from external customers, internal revenues, depreciation and others);
- Entity should provide the explanation of the measurement basis, including the explanation of nature of differences between the amounts reported per segments and total entity’s amounts
- Reconciliations
The entity should reconcile total amount per operating segments with total amount reported in the entity’s financial statements for:- Revenues;
- Profit or loss;
- Assets;
- Liabilities;
- Other material information.
- Entity-wide information
- Information about products and services;
- Information about geographical areas, namely:
- Revenues from external customers (in the country of domicile and in foreign countries;
- Certain non-current assets(in the country of domicile and in foreign countries;
- Information about major customers
Source:
- Phnom Penh HR
- iasplus . com /en/standards/ifrs/ifrs8
- cpdbox . com/ifrs/ifrs-8/
- ifrs . org /issued-standards/list-of-standards/ifrs-8-operating-segments/