Overview of IFRS 8
Segment guidance requires an entity to disclose information that enables users of the financial statements to evaluate the nature and financial effects of the business activities and the economic environments through the eyes of management (‘management approach’).
Although many entities manage their business using some level of ‘segmented’ data, the disclosure requirements are limited to (a) entities with listed or quoted equity or debt instruments, and (b) entities that are in the process of obtaining a listing or quotation of equity or debt instruments in a public market. To the extent that an entity not meeting either of these criteria chooses to disclose segmented data in financial statements, the information can only be referred to as ‘segment information’ if it complies with the segment guidance described below.
The identification of an entity’s operating segments is the core determinant for the level of information included in the segment disclosures. Operating segments are components of an entity, identified based on the breakout of information contained in the internal reports that are regularly used by the entity’s chief operating decision maker (CODM) to allocate resources and to assess performance.
Reportable segments are individual operating segments or a group of operating segments for which segment information must be separately reported (that is, disclosed). Aggregation of one or more operating segments into a single reportable segment is permitted (but not required) where certain conditions are met, the principal condition being that the operating segments should have similar economic characteristics (for example, profit margin, spreads, sales growth rates, etc.). Whether multiple operating segments can be aggregated into a single reportable segment is a matter of significant judgement.
For each segment disclosed, entities are required to provide a measure of profit or loss in the format viewed by the CODM, as well as a measure of assets and liabilities if such amounts are regularly provided to the CODM. Other segment disclosures include the revenue from customers for each group of similar products and services, revenue by geography, and dependence on major customers. Additional detailed disclosures of performance and resources are required if the CODM reviews these amounts. A reconciliation of the total amount disclosed for all segments to the primary financial statements is required for revenue, profit and loss, and other material items reviewed by the CODM.
Disclosures of IFRS 8
Required disclosures include:
- general information about how the entity identified its operating segments and the types of products and services from which each operating segment derives its revenues [IFRS 8.22]
- judgements made by management in applying the aggregation criteria to allow two or more operating segments to be aggregated [IFRS 8.22(aa)]#
- information about the profit or loss for each reportable segment, including certain specified revenues* and expenses* such as revenue from external customers and from transactions with other segments, interest revenue and expense, depreciation and amortisation, income tax expense or income and material non-cash items [IFRS 8.21(b) and 23]
- a measure of total assets* and total liabilities* for each reportable segment, and the amount of investments in associates and joint ventures and the amounts of additions to certain non-current assets (‘capital expenditure’) [IFRS 8.23-24]
- an explanation of the measurements of segment profit or loss, segment assets and segment liabilities, including certain minimum disclosures, e.g. how transactions between segments are measured, the nature of measurement differences between segment information and other information included in the financial statements, and asymmetrical allocations to reportable segments [IFRS 8.27]
- reconciliations of the totals of segment revenues, reported segment profit or loss, segment assets*, segment liabilities* and other material items to corresponding items in the entity’s financial statements [IFRS 8.21(b) and 28]
- some entity-wide disclosures that are required even when an entity has only one reportable segment, including information about each product and service or groups of products and services [IFRS 8.32]
- analyses of revenues and certain non-current assets by geographical area – with an expanded requirement to disclose revenues/assets by individual foreign country (if material), irrespective of the identification of operating segments [IFRS 8.33]
- information about transactions with major customers [IFRS 8.34]