• In April 2001 the International Accounting Standards Board (Board) adopted IAS 14 Segment Reporting, which had originally been issued by the International Accounting Standards Committee in August 1997.
• In November 2006 the Board issued IFRS 8 Operating Segments to replace IAS 14.
• Core principle
An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates.
• Scope
The separate or individual or consolidated financial statements of an entity
(i) whose debt or equity instruments are traded in a public market, or
(ii) 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.
• If 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, segment information is required only in the consolidated financial statements.
• Operating Segments
(i) Business activities from which it may earn revenues and incur expenses.
(ii) Whose operating results are regularly reviewed by the entity’s chief operating decision maker(CODM) to make decisions about resources to be allocated to the segment and assess its performance, and
(iii) For which discrete financial information is available.
• Reportable segments
Quantitative thresholds
Meets any of the following quantitative thresholds are reportable segments.
(i) Reported revenue (sales to external customers and intersegment sales or transfers) is 10per cent or more of combined revenue, internal and external, of all operating segments.
(ii) The absolute amount of its reported profit or loss is 10 per cent 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.
(iii) Its assets are 10 per cent or more of the combined assets of all operating segments.
If any of the above condition not meet but management believes that information about the segment would be useful to user than that unit is also an Operating segments.
• If the total external revenue reported by operating segments constitutes less than 75 per cent of the entity’s revenue, additional operating segments shall be identified as reportable segments until at least 75 per cent 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 separately from other reconciling items in the reconciliations required.
• If management judges that an operating segment identified as a reportable segment in the immediately preceding period is of continuing significance, information about that segment shall continue to be reported separately in the current period even if it no longer meets the criteria.
• Aggregation criteria
Two or more 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:
a. The nature of the products and services.
b. The nature of the production processes.
c. The type or class of customer for their products and services.
d. The methods used to distribute their products or provide their services; and
e. Regulatory environment.
• Disclosure
General Information
• Factors used to identify the reportable segments.
• The judgments made by management in applying the aggregation criteria.
• Types of product/service from which each reportable segment derives its revenue.
Information about the reportable segment i.e. financial statements
• A measure of profit or loss and total assets.
• A number of specific disclosures, such as revenues from external customers if they are included in segment profit or loss and presented regularly to the CODM.
• Explanation of the measurement of the segment disclosures.
• The basis of accounting for transactions between reportable segments.
Reconciliations
Totals of segment revenue, segment profit or loss, segment assets and segment liabilities and any other material segment items to corresponding totals within the financial statements.
Information about geographical areas
An entity shall report the following geographical information, unless the necessary information is not available and the cost to develop it would be excessive:
• Revenues from external customers, both (i) attributed to the entity’s country of domicile and (ii) attributed to all foreign countries
• Non-current assets other than financial instruments, deferred tax assets, post employment benefit assets, and rights arising under insurance contracts (i) located in the entities located in all foreign countries in total in which the entity holds assets. If assets in an individual foreign country are material, those assets shall be disclosed separately.
The author can also be reached at jha.cachandan@gmail.com
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