IFRS 8

Operating
Segments
Gadon, Nichole Angel Lei C.
Gida, Fiona Denisse C.
Maceda, Earl Rexell M.
 Contents of the Report

Scope Definition Updates

Who are required to Operating Segments Reportable Latest Updates to
apply IFRS 8? Segments Illustration the Financial Reporting
Standard
 IFRS 8 Operating Segments
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), Amendments to References to the Conceptual Framework in IFRS
Standards (issued March 2018) and Disclosure of Accounting Policies (issued February 2021)
IFRS 8 requires particular classes of entities (essentially those with
publicly traded securities) to disclose information about their operating
segments, products and services, the geographical areas in which they
operate, and their major customers. Information is based on internal
management reports, both in the identification of operating segments
and measurement of disclosed segment information.
 Core Principle of Segment Reporting

An entity shall disclose information to enable users of financial

statements to evaluate the nature and financial effects of the business
activities in which it engages and the economic environment in which
it operates.
 Scope of IFRS
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 organization for the purpose of issuing any class of
instruments in a public market. [IFRS 8.2]
 Operating Segments
An operating segment is a component of an entity:
a. 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)
b. 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
c. for which discrete financial information is available. [IFRS 8.2]
 Reportable Segments
Reportable segments are operating segments or aggregations of operating segments
that meet specified criteria. [IFRS 8.13]
An operating segment is reportable if it:
a. is used by management in internal reporting or results from aggregating two or
more segments* [IFRS 8.12]; and
b. qualifies under the quantitative thresholds** [IFRS 8.13]
 Aggregation Criteria
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]
 Nature and the products and services
 Nature of the production processes
 Type or class of customer for their products or services
 The methods used to distribute their products or provide their services; and
 Nature of the regulatory environment, if applicable, e.g, banking, insurance or public
utilities.
 Quantitative Threshold
An entity shall report separately information about an operating segment that meets any of the
following quantitative thresholds:
 Its revenue, including both external and intersegment sales, is 10% or more of the total
revenue, external and internal, of all operating segments.
 the absolute measure of its reported profit or loss is 10% 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% or more of the combined assets of all operating segments. [IFRS 8.13]
 Illustration
Revenue, profit or loss, and assets for each operating segment are as follows:
Based on revenue, A, B, and C are reportable segments because
revenue associated with each of these segments is at least
P4,000,000, which is 10% of the total revenue of P40,000,000.
D and E are not reportable segments because revenue of such
segments is less than 10% of the total revenue.
Based on segment assets, A and B are reportable segments because
the assets of such segments are at least P4,500,000 which is 10% of
the total segment assets of P45,000,000.
C, D and E are not reportable segments because their assets are less
than 10% of the total segment assets.
Applying the criterion of 10% of profit or loss is somewhat complicated because some
segments have profit and others have losses.

The profit must be combined and the losses must be combined to determine which is
greater between the two.

Because the total profit figure is greater than the total loss figure, P2,400,000 is the
basis for identifying reportable segments.

Any segment with profit or loss of P2,400,000 or greater (10% of P2,400,000) qualifies as
reportable segment. Therefore, A, B, and C are identified as reportable segments under
the profit or loss criterion.
In conclusion, A, B and C are identifiable as reportable segments. D
and E are not reportable segments because they did not meet any one
of the 10% quantitative thresholds for identification as reportable
segments.
Thus, D and E may be combined for reporting purposes. But A, B and
C, being reportable segments, shall be disclosed separately.
 Latest Update to IFRS 8

On February 26, 2019, the IASB published improvements to IFRS 8

Operating Segments – Proposed amendments to IFRS 8 and IAS 4
project summary. The Board will not conduct any further work
regarding this project.