Draft:IFRS 8
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IFRS 8, titled Operating Segments, is an International Financial Reporting Standard issued by the International Accounting Standards Board (IASB). It replaces IAS 14 and requires entities to report financial and descriptive information about their reportable segments.[1]
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.[2] IFRS 8 adopts a management approach, meaning segments are identified based on internal reports regularly reviewed by the entity's Chief Operating Decision Maker (CODM).[3]
Identification of operating segments
An operating segment is a component of an entity:[4]
- That engages in business activities from which it may earn revenues and incur expenses.
- Whose operating results are regularly reviewed by the CODM to make decisions about resources to be allocated to the segment and assess its performance.
- For which discrete financial information is available.
Reportable segments: The 10% thresholds
An entity must report separate information about an operating segment if it meets any of the following quantitative thresholds:[5]
Revenue Test: Reported revenue (including both external sales and intersegment sales) is 10% or more of the combined revenue of all operating segments. > Segment Revenue ≥ 10% × Total Combined Revenue (Internal + External)
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. > Segment Profit/Loss ≥ 10% × MAX(Total Profits of profitable segments ; Total Losses of loss-making segments)
Assets Test: Its assets are 10% or more of the combined assets of all operating segments. > Segment Assets ≥ 10% × Total Combined Assets
The 75% total revenue test
After identifying reportable segments based on the 10% thresholds, the entity must ensure that the total external revenue reported by those segments constitutes a sufficient portion of the entity's total revenue.[6]
Minimum Coverage Formula: > Total External Revenue of Reportable Segments ≥ 75% × Total Consolidated Revenue
Disclosure Requirements (IFRS 8)
| Paragraph | Category | Disclosure Requirement | Description / Examples |
|---|---|---|---|
| IFRS 8.22 | General Info | Management Approach | Factors used to identify segments (e.g., product, geography). |
| IFRS 8.23 | Segment Results | Profit or Loss | A measure of profit or loss, total assets, and liabilities provided to CODM. |
| IFRS 8.23(a-i) | Specified Items | Revenues, interest, depreciation, and material non-cash items. | |
| IFRS 8.28 | Reconciliations | Bridge to Totals | Reconciling segment totals to consolidated financial statements. |
Illustrative Guidance: Diversified Company
General Information (Paragraph 22(a))
Diversified Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Most of the businesses were acquired as individual units, and the management at the time of the acquisition was retained.
Segment Profit or Loss, Assets and Liabilities (Paragraphs 23 and 24)
| Item | Car parts | Motor vessels | Software | Electronics | Finance | All other | Totals |
|---|---|---|---|---|---|---|---|
| CU | CU | CU | CU | CU | CU | CU | |
| Revenues from external customers | 3,000 | 5,000 | 9,500 | 12,000 | 5,000 | 1,000(a) | 35,500 |
| Intersegment revenues | – | – | 3,000 | 1,500 | – | – | 4,500 |
| Interest revenue | 450 | 800 | 1,000 | 1,500 | – | – | 3,750 |
| Interest expense | 350 | 600 | 700 | 1,100 | – | – | 2,750 |
| Net interest revenue(b) | – | – | – | – | 1,000 | – | 1,000 |
| Depreciation and amortisation | 200 | 100 | 50 | 1,500 | 1,100 | – | 2,950 |
| Reportable segment profit | 200 | 70 | 900 | 2,300 | 500 | 100 | 4,070 |
| Impairment of assets | – | 200 | – | – | – | – | 200 |
| Reportable segment assets | 2,000 | 5,000 | 3,000 | 12,000 | 57,000 | 2,000 | 81,000 |
| Expenditures for non-current assets | 300 | 700 | 500 | 800 | 600 | – | 2,900 |
| Reportable segment liabilities | 1,050 | 3,000 | 1,800 | 8,000 | 30,000 | – | 43,850 |
(a) Revenues from segments below thresholds. (b) Finance segment derives majority revenue from interest.
Reconciliations (Paragraph 28)
| Item | CU |
|---|---|
| Total revenues for reportable segments | 39,000 |
| Other revenues | 1,000 |
| Elimination of intersegment revenues | (4,500) |
| Entity's revenues | 35,500 |
| Item | CU |
|---|---|
| Total profit or loss for reportable segments | 3,970 |
| Other profit or loss | 100 |
| Elimination of intersegment profits | (500) |
| Litigation settlement received | 500 |
| Other corporate expenses | (750) |
| Adjustment to pension expense | (250) |
| Income before income tax expense | 3,070 |
Geographical Information (Paragraph 33)
| Country | Revenues (CU) | Non-current Assets (CU) |
|---|---|---|
| United States | 19,000 | 11,000 |
| Canada | 4,200 | – |
| China | 3,400 | 6,500 |
| Japan | 2,900 | 3,500 |
| Other countries | 6,000 | 3,000 |
| Total | 35,500 | 24,000 |
References
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