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PAS 8 Operating Segments

IFRS 8 establishes standards for operating segment disclosures. It requires entities to disclose information about operating segments based on the internal reports used by management. Under IFRS 8, an operating segment is a component of an entity that engages in business activities, whose operating results are regularly reviewed by management, and for which discrete financial information is available. Reportable segments meet certain quantitative thresholds or are otherwise determined by management to be reportable. For reportable segments, specific disclosures are required regarding revenues, profits or losses, assets, and other financial information.

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117 views4 pages

PAS 8 Operating Segments

IFRS 8 establishes standards for operating segment disclosures. It requires entities to disclose information about operating segments based on the internal reports used by management. Under IFRS 8, an operating segment is a component of an entity that engages in business activities, whose operating results are regularly reviewed by management, and for which discrete financial information is available. Reportable segments meet certain quantitative thresholds or are otherwise determined by management to be reportable. For reportable segments, specific disclosures are required regarding revenues, profits or losses, assets, and other financial information.

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Alex Ong
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© © All Rights Reserved
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PFRS 8:

OPERATING SEGMENTS

REFERENCE:

IFRS Box. Retrieved from https://www.ifrsbox.com/ifrs/ifrs-8/


Overview of IFRS 8
• Issued: in 2006; followed by amendments
• Effective date: 1 January 2009
• What it does:
o It prescribes the information that an entity must disclose about its:
▪ Operating segments;
▪ Products and services;
▪ Geographical areas in which it operates; and
▪ Its major customers.
o It defines operating segments;
o It prescribes the conditions for the segments to be reportable.

Main Rules of IFRS 8


Definition of operating segment
Operating segment is a component of an entity:

• that engages in business activities from which it may earn revenues and
incur expenses (including internal revenues with other segments 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.

Who must apply IFRS 8?


Each entity:

• whose debt or equity instruments are traded in a public market; or


• that files, or is in the process of filing, its financial statements with a securities
commission or other regulatory organisation for the purpose of trading its
instruments on a public market.

This applies to both individual (separate) financial statements and consolidated


financial statements.
Which segments must be reported (are reportable)?
Not every single identified segment is reportable.
If one segment, or aggregated segments based on aggregation criteria, meet at
least ONE quantitative threshold, it must be reported separately:

1. The segment's total revenue (including external and intersegment) is 10% or


more of the total combined revenue of all operating segments (careful - not
total entity's revenue); or
2. The absolute amount of its reported profit or loss is 10% or more of the
greater, in absolute amount, of
o the combined reported profit of all operating segments that did not
report a loss; and
o the combined reported loss of all operating segments that reported a
loss; or
3. Its assets are 10% or more of the combined assets of all operating segments.

However, even if a segment does not meet any of the above thresholds, management
can still decide to present it separately.

Few more rules on reportable segments


• If the total external revenue reported by operating segments constitutes less
than 75% of the entity's revenue, additional operating segments must be
identified as reportable segments until at least 75% of the entity's revenue is
included in reportable segments.
• Information about other business activities and operating segments that are not
reportable shall be combined and disclosed in an "all other
segments" category.
• If the number of reported segments exceeds 10, then the entity should assess
whether it is practical to report them all separately and whether the
information is too detailed.
• If the management identifies new reportable segment based on quantitative
thresholds in the current reporting period, the comparative information for the
previous reporting period should be restated in order to disclose the new
segment separately also in the comparative period.
What information to disclose?
Once the segment has been identified as reportable, the entity must disclose the
following information:

1. General information:
o Factors used to identify reportable operating segments;
o Judgements used in applying the aggregation criteria;
o Types of products and services generating revenues.
2. Information about profit or loss, assets and liabilities
o Measurement of these amounts shall be on the same basis as reported to
chief operating decision maker;
o On top of the total amounts of profit or loss, assets and liabilities, the
entity shall present the information about specified revenues and
expenses (revenues from external customers, internal revenues,
depreciation and others);
o Entity should provide the explanation of the measurement basis,
including the explanation of nature of differences between the amounts
reported per segments and total entity's amounts
3. Reconciliations
The entity should reconcile total amount per operating segments with total
amount reported in the entity's financial statements for:
o Revenues;
o Profit or loss;
o Assets;
o Liabilities;
o Other material information.
4. Entity-wide information
o Information about products and services;
o Information about geographical areas, namely:
▪ Revenues from external customers (in the country of domicile and
in foreign countries;
▪ Certain non-current assets(in the country of domicile and in
foreign countries;
o Information about major customers

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