KLiPs - IFRS 8: Operating Segment

IFRS 8: Operating Segments – KLiPs

In this KLiP, we will discuss three sections:

  1. Operating segment
  2. Reportable segments, and
  3. Entity-wide disclosures
     

An entity must disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities. Only entities whose equity or debt securities are publicly traded, like, on a stock exchange, need disclose segment information.

  1. Operating Segment

This is a component of an entity that:

(a) Engages in business activities from which it may earn revenues and incur expenses

(b) Whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and

(c) For which discrete financial information is available.

Two or more operating segments may be aggregated if the segments have similar economic characteristics, and the segments are similar in all of the following respects:

  1. The nature of the products or services
  2. The nature of the production process
  3. The type or class of customer for their products or services
  4. The methods used to distribute their products or provide their services, and
  5. The nature of the regulatory environment
     
  1. Reportable Segments

An operating segment is a reportable segment if any of the following size criteria are met:

(a) Segment revenue is more than 10% of total revenue, or

(b) Segment profit or loss is more than 10% of the profit of all segments in profit (or loss of all segments making a loss, if greater), or

(c) Segment assets is more than 10% of total assets

This can be referred to as the 10% threshold.

Other things to take not of are:

  • At least 75% of total external revenue must be reported by operating segments
  • Two or more operating segments below the thresholds may be aggregated to produce a reportable segment if they have similar economic characteristics and are similar in majority of the criteria above

Operating segments that do not meet any of the quantitative thresholds may be reported separately.

  1. Entity-wide Disclosures

The following disclosures are required for the entire entity, only if it is not provided as part of the reportable segment information required by this IFRS.

  1. Information about products and services
  2. Information about geographical areas
  3.  Information about major customers

 


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