To require entities to disclose information that enables users of its financial statements to evaluate:
The nature and financial effects of the business activities in which it engages.
The economic environments in which it operates.
IFRS 8 adopts a "management approach" to segment reporting, meaning information is reported externally in the same way it is reviewed internally by the chief operating decision maker (CODM).
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 (e.g., stock exchange).
That files, or is in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market.
Entities not meeting these criteria may apply IFRS 8 voluntarily. If they do, they must comply fully.
If an entity that is not required to apply IFRS 8 chooses to disclose segment information that does not comply with IFRS 8, it must not describe the information as segment information.
Criteria for Identification:
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).
Its operating results are regularly reviewed by the CODM to make decisions about resource allocation and performance assessment.
Discrete financial information is available for it.
Not every part of an entity is necessarily an operating segment or part of one (e.g., corporate headquarters or some functional departments may not earn revenues or may not be reviewed by CODM in this way). Start-up operations can be operating segments before earning revenue.
Segments can be based on products and services, geographical areas, regulatory environments, or types of customers. The way the CODM reviews information dictates the segments.
An operating segment is reportable if it meets any of the following quantitative thresholds:
Revenue Test: Its reported revenue (including both sales to external customers and intersegment sales/transfers) is 10% or more of the combined revenue, internal and external, of all operating segments.
Profit or Loss Test: The absolute amount 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.
Asset Test: Its assets are 10% or more of the combined assets of all operating segments.
Additional Rules:
75% External Revenue Threshold: If the total external revenue reported by identified reportable segments constitutes less than 75% of the entity's total consolidated (or entity) revenue, additional operating segments must be identified as reportable segments (even if they do not meet the 10% quantitative thresholds) until at least 75% of the entity's total revenue is included in reportable segments.
Aggregation Criteria: Operating segments that do not meet any quantitative thresholds may be aggregated with others to form a single reportable segment only if the segments have similar economic characteristics AND are similar in each of the following: nature of products/services; nature of production processes; type/class of customer; methods used to distribute products/provide services; and nature of regulatory environment (if applicable).
Management may also identify an operating segment as reportable if it believes information about the segment would be useful to users, even if it doesn't meet quantitative thresholds.
If a segment was reportable in the prior period but not current, it may continue to be reported if management judges it of continuing significance. If a segment becomes reportable in current period, prior period segment data presented for comparative purposes should be restated.
There is a practical limit of about 10 reportable segments, beyond which the information may become too detailed. Entities should consider aggregating if this number is exceeded.
The amount of each segment item reported shall be the measure reported to the CODM for allocating resources and assessing performance.
This means the measurement basis used in the internal management reports is applied for segment disclosure, even if it differs from IFRS measurement principles used in the consolidated/entity financial statements.
Reconciliations of total reportable segment revenues, profit or loss, assets, liabilities (if disclosed), and other material items to corresponding entity amounts in the IFRS financial statements must be provided.
Examples of differences: internal transfer pricing policies, allocation of common costs, non-IFRS performance measures used by CODM.
For each reportable segment, an entity must disclose:
General information: Factors used to identify the reportable segments (e.g., basis of organization) and types of products and services from which each segment derives its revenues.
A measure of segment profit or loss.
Total segment assets and total segment liabilities (only if such amounts are regularly provided to the CODM).
The basis of measurement for segment profit/loss, assets, and liabilities (e.g., explaining differences from IFRS measures).
Other specific items to disclose for each reportable segment if included in the measure of segment profit/loss reviewed by CODM, or otherwise regularly provided to CODM (even if not included in that measure):
Revenues from external customers.
Revenues from transactions with other operating segments of the same entity (intersegment revenues).
Interest revenue and interest expense (reported separately, unless net interest is reviewed by CODM).
Depreciation and amortization expense.
Material items of income and expense disclosed in accordance with IAS 1.
The entity’s interest in the profit or loss of associates and joint ventures accounted for by the equity method.
Income tax expense or income.
Material non-cash items other than depreciation and amortization (e.g., impairment losses, provisions).
The amount of investment in associates and joint ventures accounted for by the equity method (if assets are reported).
Amounts of additions to non-current assets (other than financial instruments, DTA, post-employment benefit assets, rights under insurance contracts).
1. Information about Products and Services:
Revenues from external customers for each product and service, or each group of similar products and services (unless impracticable, then explain why).
2. Information about Geographical Areas:
Revenues from external customers attributed to: (a) the entity's country of domicile, and (b) all foreign countries in total from which the entity derives revenues. If material, revenues from individual foreign countries should be disclosed.
Non-current assets (other than financial instruments, deferred tax assets, post-employment benefit assets, and rights under insurance contracts) located in: (a) the entity's country of domicile, and (b) all foreign countries in total. If material, assets in individual foreign countries should be disclosed.
Basis for attributing revenues to individual countries should be disclosed.
3. Information about Major Customers:
If revenues from transactions with a single external customer amount to 10% or more of an entity's total revenues, the entity shall disclose that fact, the total amount of revenues from each such customer, and the identity of the segment(s) reporting the revenues.
The identity of the major customer need not be disclosed. A group of entities under common control is considered a single customer. Government and its agencies are also considered a single customer.
Identifying the Chief Operating Decision Maker (CODM).
Determining the operating segments based on how the CODM reviews information and allocates resources.
Assessing whether operating segments exhibit similar economic characteristics to allow for aggregation.
Applying the quantitative thresholds and the 75% external revenue test for reportable segments.
Determining the measurement basis for segment information (what is reported to CODM) and preparing necessary reconciliations.
Making materiality judgments regarding disclosures for geographical areas and major customers.
