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IFRS 8 Operating Segments
IFRS 8 Operating Segments
Implementation guidance
Contents
Introduction
Section 1
Section 2
Section 3
16
Section 4
25
Illustrative example
Introduction
Overview
This publication provides information
about the requirements of the newly
issued IFRS8 Operating Segments,
which becomes effective for annual
reporting periods beginning on or after
1January2009. It has been designed
to help those responsible for preparing
IFRS-based financial statements apply and
understand the new requirements.
Our commentary and analysis of the
Standard is divided into four sections:
Background
IFRS8 differs from its predecessor
because it introduces a management
reporting approach to identifying and
measuring the results of reportable
operating segments. As the measurement
of the segment results reported is no
longer dictated by the measurement
and recognition criteria of financial
reporting standards, reconciliations
are required where information being
presented to management differs from
IFRS information in the primary financial
statements. Some entities may need to
develop new processes in order to address
these reconciliation requirements.
As entities manage their businesses
in different ways, segment reporting
disclosures made by similar-sized entities
in similar industries are unlikely to be
directly comparable. Our publication,
Observations on the Implementation of
IFRS, indicated that there was diversity in
the way entities reported their segments
using IAS 14. Disclosures may be even
less comparable when IFRS8 comes
intoeffect.
The disclosure requirements in IFRS8 are
extensive, and we encourage all entities
to study the Standard carefully well ahead
ofits adoption.
Section 1
Identification of segments
Measurement of segment
information
IFRS8 requires that the amount
Disclosure
As IFRS8 does not define segments
Section 2
Application of the
requirements of IFRS8
IFRS8?
B Scope Which entities does IFRS8
apply to?
C Operating segments What are
E
F
G
C. Operating segments What are operating segments and how are they determined?
An operating segment is defined as:
Acomponent of an entity:
Example
Assume that an entity has a president,
a chief executive officer, and a chief
operating officer. All three individuals
serve on a management committee,
which exists to make operating
decisions related to the different
business activities of the entity, and
the committee operates on the basis
of consensus among its members.
In this case, the CODM would be the
management committee itself. However,
the fact that a management committee
exists does not necessarily mean
that the committee is the CODM. For
example, if the chief executive officer
can override the decisions made by the
committee, then the chief executive
officer may be the CODM, because
the CODM essentially controls the
management committee, and therefore
the CODM has control over the operating
decisions made. However, it is unlikely in
practice to make any difference whether
the management committee or the
chief executive officer is regarded as
the CODM, since the operating results
information that is regularly reviewed by
both is likely to be identical.
Example
An entity has seven operating
units, which are grouped into three
divisions. Each of the three divisions
has a segment manager who reports
directly to the CODM. In this case, it
is likely that the operating segments
for reporting purposes would be the
divisions as opposed to the operating
units, because the divisions have
segment managers who report
directly to the CODM. However, the
existence of the managers does not
necessarily mean that there are only
three segments. If the CODM were
to use information from the seven
operating units to assess performance
and allocate resources to each of the
seven units, this would suggest that
the responsibilities of the divisional
managers were limited and that there
were seven operating segments.
Step 4: Is discrete financial information
available for the component?
Step 2
Can the component
generate revenue and
incur expenses from
its business activities?
Step 1
Identify the CODM
No
Yes
Step 3
Are the components
operating results
regularly reviewed by
the CODM as a basis
for resource allocation
and performance
assessment?
No
The component is
not an operating
segment
Yes
Step 4
Determine
whether the operating
segmentis reportable
(Refer to part D on page 10)
Yes
Is discrete nancial
information available
for the component?
No
D. Reportable segments What are reportable segments and how are they determined?
Although the definition of operating
segments in IFRS8 differs from the
definition in IAS 14, the rules in IFRS8
enabling entities, if they so wish, to
aggregate two or more operating
segments (into reportable segments)
for the purpose of disclosing segment
information in the financial statements
are identical to those in IAS 14. (Note that
aggregation of operating segments is not
required, although IFRS8 acknowledges
that there may be a practical limit to the
number of reportable segments that an
entity separately discloses, beyond which
segment information may become too
detailed, and suggests that the practical
limit may be around 10.)
Multiple operating segments may be
aggregated into a single reportable
segment if aggregation is consistent with
the core principle of IFRS8, the segments
have similar economic characteristics,
and the segments are similar in all of the
following respects:
10
11
Step 5
Do some operating
segments meet all the
aggregation criteria?
Yes
Aggregate operating
segments if desired
No
Step 6
Do some operating
segments exceed the 10%
quantitative thresholds?
Yes
No
Step 7
These are
reportable
segments to
be disclosed
Combine
operating
segments
if desired
Yes
Do some operating
segments have similar
economic characteristics
and meet a majority of
the aggregation criteria?
No
Step 8
Do the reportable
segments identied
account for 75% of
consolidated revenue?
Yes
No
Identify additional
operating segments
(and if appropriate,
aggregate with other
reportable segements)
until external revenue
of all segments > 75%
of consolidated returns
12
Aggregate remaining
segments and other
activities into
all other segments
category
Case Study
The operating segments of a transport
and logistics group are:
Operating
segment
Logistics/distribution
services
% of consolidated
revenue
55
Parcels
Van hire
Home moving
Commercial moving
Document storage
Refuse collection
services
Example
If the CODM uses a measure of
segment profit before income taxes
that includes depreciation expense
and one that does not, the appropriate
measure to be reported for operating
segments is the measure that includes
depreciation expense, because
depreciation expense is included in the
measurement of the corresponding
amount (i.e., profit before income
taxes) in the consolidated financial
statements.
The key practical benefit for an entity
using the measurement approach required
by IFRS8 is that it should be quick and
easy to produce the information.
13
14
segment transactions
if not apparent from the reconciliations
described below, the nature of any
differences between the measurement
of the following items in the reported
segment information and the
same items in the entitys financial
statements in accordance with IFRS:
profit or loss before income tax and
discontinued operations
assets
liabilities
5 As well as accounting policy
6 Reconciliations of:
15
Section 3
Illustrative example
16
A. Identification of operating
segments and reportable
segments
The following information has been
obtained as a basis for determining the
entitys reportable segments:
Commentary
The following illustration shows the consolidated income statement and balance sheet
of Super Food Limited, as well as the required disclosures under IFRS8. Commentary
boxes highlight where key IFRS8 disclosures differ from those required by IAS 14 and
where entirely new disclosures are required. References to the relevant paragraphs of
IFRS8 are also provided to the right of each disclosure.
17
31 December
200X
000
Sale of goods
Rendering of services
Rental income
Revenue
Cost of sales
Gross profit
Other income
Selling and distribution costs
Administrative expenses
Other expenses
Operating profit
Finance revenue
Finance costs
Share of profit of an associate
Profit before tax
Income tax expense
Profit for the year
18
237,489
17,131
1,404
256,024
(163,816)
92,208
1,585
(14,775)
(64,055)
(1,088)
13,875
785
(1,627)
83
13,116
(3,775)
9,341
31 December
200X
000
Assets
Non-current assets
Property, plant and equipment
Investment properties
Intangible assets
Investment in an associate
Available-for-sale investments
Deferred tax assets
33,919
10,893
6,195
764
10,082
383
62,236
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and short-term deposits
33,875
39,873
153
22,628
96,529
Total Assets
31 December
200X
000
158,675
52,375
39,190
Total equity
91,565
Non-current liabilities
Interest bearing loans and borrowings
Convertible preference shares
Provisions
Employee benefits liability
Deferred tax liability
15,078
2,778
5,100
2,544
3,103
28,603
Current liabilities
Trade and other payables
Interest-bearing loans and borrowings
Income tax payable
Provisions
Other liabilities
17,841
2,460
3,980
599
13,627
38,507
Total liabilities
67,110
158,675
19
Commentary
The first paragraph of the segment information note is similar to what is required
under IAS 14. However, the subsequent narrative responds to new requirements
to provide sufficient detail for the reader to understand how the organisation is
structured, on what basis management has determined the reportable segments, and
whether any operating segments have been combined.
IFRS8 and IAS 14 both require the basis of pricing inter-segment transfers to be
disclosed. Discussion of the differences between the measurement of segment
results and the consolidated financial statements is a new requirement, because no
such differences could arise under IAS 14.
IFRS disclosure
requirement
The retail segment sells bakery products produced by the manufacturing segment
IFRS8.22(a)
IFRS8.22(b)
IFRS8.22(a)
Catering
Manufacturing
Publishing
Other
Eliminations and
Adjustments
Consolidated
000
000
000
000
000
000
000
IFRS8.23(a)
129,842
59,388
2,704
32,306
32,686
(902)
256,024
IFRS8.23(b)
Inter-segment
7,465
36,791
4,761
(49,017)
Total revenues
129,842
66,853
39,495
32,306
37,447
(49,919)
256,024
Revenues
Third party
1. Segment revenue and the related receivables for the publishing segment are recognised on shipment of goods.
In the consolidated financial statements, such revenue and receivables are recognised when the goods are
delivered to the retailer.
IFRS8.27
2. Sales between segments are made at prices that approximate market prices.
IFRS8.27(a)
20
Commentary
The disclosure of liabilities by segment is required under IAS 14. However, it is only
required by IFRS8 if it is provided to the CODM. In this example, a measure of segment
liabilities for operating segments is provided to the CODM, and is therefore disclosed.
IFRS8 requires additions to non-current assets other than financial instruments,
deferred tax assets, post-employment benefit assets and rights arising under insurance
contracts to be disclosed. Under IAS 14, only additions to property, plant and equipment
and intangible assets were disclosed. In most cases the amount to be disclosed under
IFRS8 will be the same as the amount disclosed under IAS 14.
Catering
Manufacturing
Publishing
Other
Eliminations and
Adjustments
Consolidated
000
000
000
000
000
000
000
6,887
4,716
1,283
1,169
3,284
(4,223)
13,116
Depreciation and
amoritisation
2,609
819
206
183
3,817
IFRS8.23(e)
306
306
IFRS8.23(i)
341
191
532
IFRS8.23(i)
Share of profit of
associate
83
83
IFRS8.23(g)
Segment assets
52,647
45,145
24,620
14,165
23,829
(1,731)
158,675
764
764
IFRS8.24(a)
Capital expenditure 5
8,579
1,207
1,842
216
63
11,907
IFRS8.24(b)
Segment liabilities
14,839
9,783
3,609
4,704
6,776
67,110
IFRS8.23
Investment in associate
27,399
IFRS disclosure
requirement
IFRS8.23
IFRS8.23
3. Profit before tax does not include management bonus expense (1,489), share-based payment expense (990),
finance revenue (785) or finance costs (1,627), while the additional segment revenue recognised on shipment
of goods (902) included in segment profit before tax is not included in the consolidated profit before tax.
IFRS8.27(b)
4. As noted above, segment assets include receivables related to recognition of revenue on shipment (2,114)
and do not include deferred tax assets managed on a group basis (383).
IFRS8.27(c)
5. Capital expenditure consists of additions of property, plant and equipment and intangible assets.
6. Loans and borrowings (17,538), convertible preference shares (2,778), and tax liabilities (7,083) are
managed on a group basis, and are not allocated to operating segments.
IFRS8.27(d)
21
Note X Segment
information (continued)
IFRS disclosure
requirement
Geographic information
Revenue from external
customers
000
IFRS8.33(a)
Germany
75,123
France
30,476
United Kingdom
38,272
United States
62,349
Other countries
49,804
256,024
IFRS8.33(a)
IFRS8.34
Location of non-current
assets
IFRS8.33(b)
000
Germany
22,165
France
12,370
United Kingdom
10,518
United States
Sale of goods
Rendering of services
Rental income
Revenue
Gross profit
Other income
Selling and distribution costs
Administrative expenses
Other expenses
1,488
51,771
Operating profit
Finance revenue
Finance costs
Share of profit of an associate
Commentary
22
30 June
200Y
000
Cost of sales
5,230
Other countries
118,745
8,566
702
128,013
(81,908)
46,105
793
(7,388)
(32,028)
(544)
6,938
393
(814)
42
6,559
(1,888)
4,671
30 June
200Y
000
30 June
200Y
000
Assets
Non-current assets
49,019
16,949
9,195
764
10,082
383
86,338
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and short-term deposits
Total Assets
33,875
34,618
252
23,628
92,373
178,711
Issued capital
Retained earnings
Total equity
52,375
347,890
100,265
Non-current liabilities
Interest bearing loans and borrowings
Convertible preference shares
Provisions
Employee benefits liability
Deferred tax liability
12,618
2,778
5,100
2,544
5,103
28,143
Current liabilities
Trade and other payables
Interest-bearing loans and borrowings
Income tax payable
Provisions
Other liabilities
Total liabilities
Equity and liabilities
23,504
4,460
6,113
2,599
13,627
50,303
78,446
178,711
23
Catering
Manufacturing
Publishing
Other
Eliminations and
Adjustments
Consolidated
IFRS disclosure
requirement
000
000
000
000
000
000
000
IAS 34.16(g)(iv)
69,921
34,694
1,352
1,153
21,343
(450)
128,013
IAS 34.16(g)(i)
Inter-segment
3,733
18,396
2,381
(24,510)
IAS 34.16(g)(ii)
Total revenues
69,921
38,427
19,748
1,153
23,724
(24,960)
128,013
4,234
1,568
642
585
1,642
(2,112)
Revenues
Third party
6,559
IAS 34.16(g)(iii)
1. Segment revenue and the related receivables for the publishing segment are recognised on shipment of goods.
In the consolidated financial statements, such revenue and receivables are recognised when the goods are
delivered to the retailer.
2. There has been no change in the basis of segmentation or the measurement of segment profit since the last
annual financial statements. Segment profit before tax does not include management bonus expense (515),
share-based payment expense (550), finance revenue (393) or finance costs (814), while the additional
segment revenue recognised on shipment of goods (626) included in segment profit before tax is not included
in the consolidated profit before tax.
IAS 34.16(g)(v)
The assets of the retail segment at 30 June 200Y amount to 76,803, compared with
52,647 at 31 December 200X. The material increase is due to the acquisition of new
retail outlets. There has been no material change in the assets of other segments.
IAS 34.16(g)(iv)
Commentary
Disclosure of external and inter-segment revenues is required only if the amounts
concerned are included in the measure of segment profit or loss provided to the CODM,
or otherwise provided to the CODM.
Disclosure of total segment assets is required by IAS 34 only where there has been
amaterial change since the last annual financial statements.
IAS 34 requires a reconciliation of segment profit or loss to the consolidated profit
or loss before tax. However, a reconciliation of segment revenues to the entitys
consolidated revenues is not required in interim financial statements.
24
Section 4
Scope
Reportable operating
segments
In order to be able to aggregate operating
segments, must all of the aggregation
criteria be satisfied?
In order to aggregate two (or more)
operating segments that individually meet
any of the 10% quantitative thresholds
for a reportable segment, all criteria
must be satisfied. However, operating
segments that do not meet any of the
quantitative thresholds for reportable
Measurement
If the measurement bases of the
information provided to the CODM differ
from the measurement bases of the
IFRS financial statements, what needs
tohappen?
Reconciliations are required that
separately identify and describe each
adjustment needed to reconcile the total
of all the reportable segments profits
or losses to the consolidated profit or
loss. To the extent that the nature of the
measurement differences is not apparent
from the reconciliations, they must be
explained. (IFRS8.27-28)
Disclosures
Is there an upper limit on the number
of reportable segments that an entity
shoulddisclose?
IFRS8 does not place any limit. However,
it does advise that if the number of
reportable segments identified exceeds
10, an entity should consider whether
a practical limit has been reached.
(IFRS8.19)
If a company has only a single operating
segment, what disclosures, if any, are
required?
If an entity determines that it has only
a single reportable operating segment
then the entity-wide disclosures are still
required. Entity-wide disclosures must be
based on IFRS information and include:
25
Impairment
26
Example
An entity has a single reportable
segment under IAS 14, consisting of
CGU A and CGU B. Goodwill of 100 is
allocated at the segment level. Following
the implementation of IFRS8, the entity
determines that CGU A and CGU B are
separate reportable segments and that
30 of the goodwill is allocable to CGU
A and 70 to CGU B. An impairment loss
is triggered on the implementation of
IFRS8, as follows:
IAS 14
IFRS8
CGU A
CGU B
230
100
130
Recoverable amount
280
80
200
50
(20)
70
Impairment loss
Nil
(20)
Nil
Transition
Is there any exemption from restating
comparatives if an entity early adopts
IFRS8?
No, there is no exemption from restating
comparatives if IFRS8 is early adopted.
Comparatives must be restated unless the
necessary information is not available and
the cost to develop it would be excessive,
in which case that fact must be disclosed.
(IFRS8.36)
What if the financial information reviewed
by the CODM changes and/or the entitys
segments change?
If operating segments change, an entity
must restate comparatives in line with
the new operating segments unless the
information is not available and the cost
to develop it would be excessive. The
assessment of whether the information
is not available and the cost to develop it
would be excessive is made on an itemby-item basis, and where comparatives
have not been restated, this fact must
27
28
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2009 EYGM Limited.
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