IFRS 8: Operating Segments

1
Why segmental reporting?

• A large business may have different business

interest which may have
 Different business & other risks
 Different returns
 Different needs of investments

• The users of FS must be able to evaluate where

the business results come from and the then
analyse the performance of the company as a
whole
Objective of IFRS 8

• An entity must disclose information to enable

users of its financial statements
to evaluate the nature and
financial effects of the business activities in
which it engages and the economic
environments in which it operates
Scope

 Applies to entities whose equity or debt securities are

publicly traded
 In group accounts, only consolidated segmental
information needs to be shown.
 Entities filing or in the process of filing FS for the
purpose of issuing instruments
 Definition
• Operating segment: is a component of an entity:

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

Discrete financial information is available

IFRS 8 adopts the managerial approach to identifying segments

Aggregation
• Two or more operating segments may be aggregated based on similar
characteristics:

The nature of the products or services

The nature of the production process

The type or class of customer for their products or services

The methods used to distribute their products or provide their services,

and

If applicable, the nature of the regulatory environment

Determining reportable segments
• An entity must report separate information about each operating
segment that:
 Has been identified as meeting the definition of an
operating segment; and
 Segment total is 10% or more of total:
• Revenue (internal and external), or
• Profit of all segments not reporting a loss or
• Assets

• Aggregate test
At least 75% of the entity’s total external revenue must be reported by
the operating segments identified
Case Study
Case Study
Answer
North America segment
The North America segment meets the
criteria, passing all three tests.

 Its combined revenue is $302

million;

 its reported profit is $60 million, and

 its assets are $800 million.

European Segment
The European segment also meets the criteria, but only marginally.

 Its reported revenue, at $203 million is greater than 10% of combined

revenue, and only one of the tests must be satisfied.

 However, its loss of $10 million is less than the greater of 10% of
combined profit and 10% of combined loss, so it fails this test.

 It also fails the assets test, as its assets, at $300 million are less than 10%
of combined assets ($310 million).
Conclusion
• IFRS 8 requires further that at least 75% of total external revenue must
be reported by operating segments. Currently, only 50% is so reported.

• Additional operating segments (the 'other regions') must be identified

until this 75% threshold is reached.

• IFRS 8 may result in a change to the way Jesmond's operating

segments are reported, depending on how segments were previously
identified.
Disclsoures
• IFRS 8 disclosures are of:
 Operating segment profit or loss
 Segment assets
 Segment liabilities
 Certain income and expense items

• Disclosures are also required about the revenues derived from products or
services and about the countries in which revenues are earned or assets held,
even if that information is not used by management in making decisions.
Thank You!