IFRS 8 – Operating Segments UFE Study Guide

Operating Segments (IFRS 8)
Last Updated: November 14, 2012

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This IFRS applies to the financial statements for entities whose debt or equity is publicly traded or is in the process of becoming public. This also applies to subsidiaries with parents that meet the above criteria. Segment information must be separately reported.

What is an operating segment?

A component of an entity which meets all these criteria:

  • Engages in activities which earn revenue or incur expenses including with other internal components. Start-up activities yet to earn revenue are included.
  • Whose operating results are regularly reviewed by chief decision makers (often CEO or COO) about resource allocation.
  • For which discrete financial information is available.

Not every division of an entity is necessarily a segment. A corporate HQ or some functional departments who do not earn revenue or only earn incidental revenue would not be considered segments.

Reportable Segments

Quantitative Thresholds

Separate information must be reported if the following thresholds are met:

  • reported revenue, including external sales and intersegment sales or transfers ≥ 10% of total internal and external revenue for all segments
  • absolute amount of profit or loss≥ 10% of
    • 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.
  • Assets are ≥ 10% of the combined assets in all operating segments
  • If management believes that a segment which does not meet the above thresholds should still be reported then it is permitted.
  • For operating segments that do not meet the quantitative threshold, entities may combine them based on the aggregation criteria.

Aggregation Criteria

Segments may be aggregated if they exhibit similar long-term financial performance and have similar economic characteristics. Two or more similar segments may be aggregated if they have similar:

  • nature of the products and services
  • nature of the production processes
  • types or class of customers
  • distribution methods used
  • regulatory environment

Additional Information

  • If the total external revenue reported by all operating segments ≤ 75% of the entities revenue, additional operating segments shall be identified as reportable segments, even if above criteria are not met until at least 75% of all segment revenue is included in reportable segments.
  • Information about all other activities or segments shall be reported as ‘all other segments’
  • If a new operating segment is identified in the current period, comparatives must be provided, even if this wasn’t reported previously.
  • An entity should use judgment when reporting more than 10 segments as the information may become too detailed.

Disclosure Requirements

Fairly detailed disclosure required. Some high-level requirements:

  • Factors used to identify reportable segments
  • Types of products and services of each segment
  • Information about segment profit or loss (internal+external), assets/liabilities, income tax expense, amortization, interest revenue and expense, material non-cash items
  • Reconciliation of segment amounts to entity-wide amounts

Examples of Segments Needing Disclosure

  • Information about major product or service lines
  • Information about geographical areas
  • Information about major customers

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