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IFRS 8: OPERATING SEGMENTS

SCOPE
Separate or individual financial statements of an entity 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 FS with a securities commission...
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SCOPE
What is the rule when a financial report contains both the consolidated financial statements of a parent that is within the scope of this IFRS as well as the parent's separate financial statements? Refer to IFRS8.4

DEFINITION: Operating Segments

Components of an entity with the following three characteristics:
the component engages in business activities from which it may earn revenues and incur expenses the component's operating results are regularly reviewed by the CODM to make decisions about resources to be allocated to the segment and assess its performance
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DEFINITION: Operating Segments

Components of an entity with the following three characteristics:
discrete financial information is available for the component

IDENTIFYING OPERATING SEGMENTS

Management Approach CODM = function, not necessarily a manager with a specific title Function is to allocate resources to and assess the performance of the components of an entity CEO, COO, group of executives/directors
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IDENTIFYING CODM
The COOs regularly review operating results for the individual countries within their respective regions to assess performance and to decide how to allocate their regional resources to individual countries. The COOs report regularly to the CEO, providing summaries of their regional operating results and other financial information but reporting individual country information only by exception (ie when outside defined parameters or when requested by the CEO). The CEO then makes decisions as to how to allocate resources to the two continental regions managed by the two COOs.
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IDENTIFYING CODM
The COOs regularly review operating results for the individual countries within their respective regions to assess performance. The COOs report regularly to the CEO, providing summaries of their regional operating results and other financial information, supported by an analysis of results broken down by country. The CEO and the COOs then negotiate together to agree how to allocate resources to the regions and countries.

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IDENTIFYING OPERATING SEGMENTS

Components engaged in business activities
Pre-operating activities Components with outputs transferred exclusively to other segments Corporate functions? Post-employment benefit plans?

IDENTIFYING OPERATING SEGMENTS

Operating results regularly reviewed Term 'regularly' not defined, hence, judgment needed to decide if this condition is met

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IDENTIFYING OPERATING SEGMENTS

Discrete information available What if only gross profit margin data is available? What if only revenue data is available?

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IDENTIFYING OPERATING SEGMENTS

Matrix organization The entity has to determine which set of components represents the operating segments by reference to the core principle

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REPORTABLE SEGMENTS
An entity is permitted to aggregate segments with similar economic characteristics that meet certain criteria The entity must then determine which operating segments are reportable

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QUANTITATIVE THRESHOLDS
A) Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10% or more of the combined revenue, internal and external, of all operating segments

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QUANTITATIVE THRESHOLDS
B) The absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of
the 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
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QUANTITATIVE THRESHOLDS
C) Its assets are 10% or more of the combined assets of all operating segments

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QUANTITATIVE THRESHOLDS

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REPORTABLE SEGMENTS
Minimum number of reportable segments - the 75% revenue test External revenue - inter-segment revenue would be eliminated on consolidation Additional segments should be included to reach the 75% threshold
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REPORTABLE SEGMENTS

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REPORTABLE SEGMENTS
Operating segments that do not meet any of the quantitative thresholds may be considered reportable if management believes that information about that segment would be useful to users of the financial statements
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NOT REPORTABLE SEGMENTS

Information about all remaining nonreportable operating segments is combined and disclosed in an 'all other segments' category

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NO. OF REPORTABLE SEGMENTS

IFRS 8 does not set a precise limit but does suggest that if the number of reportable segments increases above ten, the entity should consider whether a practical limit has been reached

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DISCLOSURES
Segmental information is disclosed to enable users of the financial statements to evaluate the nature and financial effects of the business activities in which the entity engages and about the economic environments in which it operates
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RESTATEMENT
GR: Any changes in the identity of reportable segments result in the restatement of comparative figures to reflect the reportable segments identified at the reporting date Exception: If the information required to restate not available and the cost to develop it considered excessive
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SUMMARY
Identify operating segments Aggregate identified operating segments Measure identified operating segments to determine reportable segments Consider further addition of reportable segments
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