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IFRS 8 Operating Segments Disclosure is required in the financial statements for users to identify the nature and financial

al effects of the business activities and economic environment in which an entity operates. The recently revised standard IFRS 8 deals with how entities should report results from their various operating segments. So who needs to report segment information? NOT everyone needs to report operating segment information. IFRS 8 only applies in the separate or consolidated financial statements of entities that: Have publicly traded debt or equity; or File, or are in the process of filing, financial statements with a securities commission or other regulatory organization for the purpose of issuing instruments into the public market.

NOTE that should an entity elect to present segment information when not required to do so, then it MUST follow IFRS 8. Definition What is an operating segment? An operating segment is a component of the business meeting all 3 conditions: A. Business activities A component of the entity is a part of the entity that engages in business activities from which it may earn revenues and incur expenses (including transactions with other components of the same entity) B. Chief operating decision maker A component of an entity is a part of entity whose operating results are regularly reviewed by the entitys chief operating decision maker to assess performance and make decisions about the allocation of resources. So who is the chief operating decision maker? The term chief operating decision maker identifies a function, not necessarily a manager with a specific title. That function is to allocate resources to and assess the performance of the operating segments of an entity. Often the chief

operating decision maker of an entity is its chief executive officer or chief operating officer but it may be a group of executive directors or others. C. Financial information A component of an entity is a part of the entity for which discrete financial information is available. Time to think How many operating segments are present in the results reflected in the table below? Table 1: Extract from Segment (PTY) Ltd Monthly Reporting Pack Beauty Care products - Shampoo - Cosmetics Family Care products - Diapers - Paper towels Drinks and snacks - Juice - Energy Drink - Fruit and Granola Bars Total Revenue 55 18 37 119 19 100 98 25 64 9 272 Cost (15) (6) (9) (70) (6) (64) (50) (20) (22) (8) (135) Gross Profit 40 12 28 49 13 36 48 5 42 1 137

So how many operating segments did you count? [] [] [] [] 7 10 1 3

If you apply the definition of an operating segment, all these different segment earn revenues and incur expenses; are reviewed by the chief operating decision maker (hence their inclusion in the monthly pack); and there is financial information available. So do you need to disclose all operating segments in the financial statements??? NO! You only need to disclose REPORTABLE Segments

A segment is reportable if any of the following quantitative thresholds is reached: Reported revenue internal and external sales are 10% or more of the combined revenue of all operating segments Reported profit or loss is 10% or more than the greater of o combined reported profit of all operating segments that did not report a loss; and o combined reported loss of all operating segments that reported a loss. Assets are 10% or more of combined assets of operating segments

Aggregating segments So can you aggregate operating segments into a single reportable segment? Operating segments may be aggregated into a single operating segment if aggregation is consistent with the core principle of this IFRS, the segments have similar economic characteristics, and the segments are similar in each of the following respects: Requirements the nature of the products and services; the nature of the production processes; the type or class of customer for their products and services; the methods used to distribute their products or provide their services; and o if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities. o o o o

Time to think How many reportable segments can you identify in the table 1 above. The answer is 3: o cosmetics o paper towels o energy drinks

So now that you have determined what your reportable segments are, what information do you need to disclose in the financial statements? Time to think When disclosing your reportable segments in the financial statements, do the results need to be in compliance with IFRS? [] No [] Yes

IFRS 8 requires that the amounts reported for each reportable segment should be measured as reported to the chief operating decision maker. In other words, report the information as management gets it even if this is not compliant with IFRS.

Reconciliations There is, however, a requirement to reconcile these non-IFRS figures to the amounts reported in the audited financial statements. Reconciliation is required for the following: segment revenue to the entitys revenues as per the statement of comprehensive income; segment profit or loss to the entitys profit or loss before income tax expense or income and discontinued operations as per the statement of comprehensive income; segment assets to the entitys assets as reported in the statement of financial position; segment liabilities to the entitys liabilities as reported in the statement of financial position; segment amounts for every other material item of information disclosed to the corresponding amount for the entity.

Example Rs 3,970 100 (500) 500 (750)

Profit or loss Total profit or loss for reportable segments Other profit or loss Elimination of intersegment profits Unallocated amounts: Litigation settlement received Other corporate expenses

Adjustment to pension expense Income before tax expense Disclosure By NOW you have: determined your operating segments determined which of these are reportable segments aggregated segments (where applicable)

(250) -------3,070 =====

IFRS 8 then sets out required disclosures for each reportable segment. These are divided into 3 general areas: General information Information about profit or loss Information about assets and liabilities

General information Factors used to identify the entitys operating segments, including the basis of organization (for example, how management organizes the entity around: differences in products and services, geographical areas, regulatory environments, or a combination of these factors); Whether segments have been aggregated; and Types of products and services from which each reportable segment derives its revenues.

Profit or loss, assets and liabilities The following disclosures should be given for each reportable segment. revenues from external customers; revenues from transactions with other operating segments of the same entity; interest revenue; interest expense; depreciation and amortization; material items of income and expense disclosed in accordance with IAS 1 presentation of financial statements; the entitys interest in the profit or loss of associates and joint ventures accounted fro by the equity method; income tax expense or income; and material non-cash items other than depreciation and amortization.

An entity shall disclose the following about each reportable segment if the specified amounts are included in the measure of segment assets reviewed by the Chief Operating Decision Maker or are otherwise regularly provided or the chief operating decision maker, even if not included in the measure of segment assets: o the amount of investment in associates and joint venture accounted for by the equity method, and o the amounts of additions to non-current assets other than financial instruments, deferred tax assets, post employment benefit assets and rights arising under insurance contracts. Note that an entity is to report a measure of total assets and/or liabilities for each reportable segment only if such amounts are regularly provided to the chief operating decision maker.