Applicability: IFRS 8 applies to entities with publicly traded debt or equity instruments.
- Mandatory for all listed entities
- Optional for unlisted entities
- Allows disclosure by products/services or geographical areas
Operating Segment: A component of an entity that engages in business activities, earns revenues, incurs expenses, whose results are reviewed by the CODM, and for which discrete financial information is available.
- Revenue & Expenses: Engages in revenue-generating activities
- CODM Review: Regularly reviewed by Chief Operating Decision Maker
- Discrete Financial Information: Separate financial data available
CODM Note: A function (not necessarily a position) - the person(s) who can control and allocate resources of the entity.
Reportable if meets at least one of these 10% tests:
| Test | Calculation |
|---|---|
| Revenue Test | Segment Revenue ≥ 10% of Total Revenue |
| Asset Test | Segment Assets ≥ 10% of Total Assets |
| Profit/Loss Test | |Segment Result| ≥ 10% of |Total Profit/Loss| |
75% Revenue Coverage: Reportable segments must represent at least 75% of total external revenue.
- If threshold not met, add segments until achieved
- Ensures sufficient disclosure of business activities
Reportable segments (America + Asia) = 73.9% of revenue
73.9% < 75% → Add Australia (13.2%)
New total: 87.1% > 75% ✓ Threshold met
- Factors used to identify reportable segments
- Profit or loss information (revenue, expenses)
- Segment assets and liabilities
- Basis of accounting for intersegment transactions
- Reconciliations to entity totals
- Entity-wide disclosures (products, geographies, major customers)
| Entity | Status | IFRS 8 Application |
|---|---|---|
| Omega | Listed | Mandatory - Must disclose |
| Lota | Unlisted | Optional - May choose not to apply |
| Kappa | Unlisted | Optional - May choose to disclose |
- Identify operating segments using definition criteria
- Apply 10% quantitative thresholds
- Designate segments meeting thresholds as reportable
- Check 75% total external revenue coverage
- Add segments if needed to meet 75% threshold
- Prepare required disclosures
Core Principles
Operating Segment Definition
- Business Activities: Engages in business activities to earn revenues and incur expenses
- Regular Review: Operating results are regularly reviewed by the Chief Operating Decision Maker (CODM)
- Discrete Information: Has available discrete financial information
- CODM Role: The individual or group responsible for making decisions about resource allocation and performance assessment
Reportable Segment Criteria
- Revenue: Reported revenue is 10% or more of the total revenue of all operating segments
- Profit/Loss: The absolute amount of its reported profit or loss is 10% or more of the greater of:
- The combined reported profit of all profit-making segments
- The combined reported loss of all segments that reported a loss
- Assets: Total assets are 10% or more of the total assets of all operating segments
Additional Considerations
- Combining Segments: Segments with similar economic characteristics can be combined
- Usefulness: Segments may be reportable even if they don't meet quantitative thresholds if management believes the information would be useful
- 75% Threshold: Total external revenue of reportable segments should be at least 75% of total entity revenue
Why Segment Reports Vary Between Companies
- Different Internal Structures: Companies organize themselves differently based on their business models
- CODM Focus: The CODM's assessment basis (geographical, product type, etc.) influences segment identification
- Management Discretion: Measurement of revenues and expenses is based on principles used by the CODM, which may differ from IFRS
- Different Practices: Varying practices among CODMs lead to different segment reports even in similar organizations
Applicability Requirements
- Listed Entities: IFRS 8 is mandatory for listed companies
- Unlisted Entities: Not required to provide segment disclosures, but if they choose to, they must comply with IFRS 8
- Subsidiaries: Individual subsidiaries (unlisted) are not required to provide segment disclosures in their separate financial statements
Common Questions Answered
Why do segment reports differ between similar companies?
Because segment identification depends on internal management structure and the CODM's review process, which varies between companies.
Why don't some companies provide segment disclosures?
IFRS 8 only applies to listed entities. Unlisted entities are not required to provide segment information.
Can subsidiaries have different segment reporting than the parent?
Yes, because subsidiaries (if unlisted) are not required to provide segment disclosures in their individual financial statements.
Why are some segments based on geography and others on products?
Because the basis of segmentation depends on how the CODM reviews performance and allocates resources, which varies by company.