IFRS 8 Operating Segments
IFRS 8 requires companies with publicly traded stocks or bonds to disclose information in their financial statements.
This information is intended to assist users in comprehending their different business activities and the economic conditions in which they operate.
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.
Standard history
In April 2001 the International Accounting Standards Board (Board) adopted IAS 14 Segment Reporting, which had originally been issued by the International Accounting Standards Committee in August 1997. IAS 14 Segment Reporting replaced IAS 14 Reporting Financial Information by Segment, issued in August 1981.
In November 2006 the Board issued IFRS 8 Operating Segments to replace IAS 14. IAS 1 Presentation of Financial Statements (as revised in 2007) amended the terminology used throughout the Standards, including IFRS 8.
Other Standards have made minor consequential amendments to IFRS 8. They include IAS 19 Employee Benefits (issued June 2011), Annual Improvements to IFRSs 2010–2012 Cycle (issued December 2013) and Amendments to References to the Conceptual Framework in IFRS Standards (issued March 2018) and Disclosure of Accounting Policies (issued February 2021).
Source: IFRS.org
Frequently asked questions
What is operating segment under IFRS 8?
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 (including revenues and expenses relating to transactions with other components of the same entity).
What is an operating segment?
An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with each other. The international financial reporting standard 8 An entity must report on the services which each reportable segment derives its revenues and profit or loss assets and liabilities.
Why are operating segments important?
Information about operating segments is really important to investors. It helps them understand how well the entity is doing and predict future cash flows and profits. Many participants support the use of the management perspective for operating segments.
Summary of IFRS 8?
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 [IFRS 8.2]
However, when both separate and consolidated financial statements for the parent are presented in a single financial report, segment information need be presented only on the basis of the consolidated financial statements [IFRS 8.4]
Operating segments
IFRS 8 defines an operating segment as follows. An operating segment is a component of an entity: [IFRS 8.2]
- that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity) whose operating results are reviewed 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
Reportable segments
IFRS 8 requires an entity to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria: [IFRS 8.13]
- its reported revenue, from both external customers and intersegment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments, or the absolute measure 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, or its assets are 10 per cent or more of the combined assets of all operating segments.
Two or more operating segments may be aggregated into a single operating segment if aggregation is consistent with the core principles of the standard, the segments have similar economic characteristics and are similar in various prescribed respects. [IFRS 8.12]
If the total external revenue reported by operating segments constitutes less than 75 per cent of the entity's revenue, additional operating segments must be identified as reportable segments (even if they do not meet the quantitative thresholds set out above) until at least 75 per cent of the entity's revenue is included in reportable segments. [IFRS 8.15]
Disclosure requirements
Required disclosures include:
- general information about how the entity identified its operating segments and the types of products and services from which each operating segment derives its revenues [IFRS 8.22]
- judgements made by management in applying the aggregation criteria to allow two or more operating segments to be aggregated [IFRS 8.22(aa)]
- # information about the profit or loss for each reportable segment, including certain specified revenues* and expenses* such as revenue from external customers and from transactions with other segments, interest revenue and expense, depreciation and amortisation, income tax expense or income and material non-cash items [IFRS 8.21(b) and 23]
- a measure of total assets* and total liabilities* for each reportable segment, and the amount of investments in associates and joint ventures and the amounts of additions to certain non-current assets ('capital expenditure') [IFRS 8.23-24]
- an explanation of the measurements of segment profit or loss, segment assets and segment liabilities, including certain minimum disclosures, e.g. how transactions between segments are measured, the nature of measurement differences between segment information and other information included in the financial statements, and asymmetrical allocations to reportable segments [IFRS 8.27]
- reconciliations of the totals of segment revenues, reported segment profit or loss, segment assets*, segment liabilities* and other material items to corresponding items in the entity's financial statements [IFRS 8.21(b) and 28]
- 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 [IFRS 8.32]
- analyses of revenues and certain non-current assets by geographical area – with an expanded requirement to disclose revenues/assets by individual foreign country (if material), irrespective of the identification of operating segments [IFRS 8.33]
- information about transactions with major customers [IFRS 8.34]
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