SEGMENT REPORTING

NATURE
Segment Reporting
PFRS 8 now sets out the requirements for disclosure of information about operating segments.
The core principle of segment reporting is as follows:
An entity shall disclose information to enable users of 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.
In other words, segment reporting is the disclosure of certain financial information about the
products and services an entity produces and the geographical areas in which an entity operates.
The purpose of such disclosure is to enable investors and users make better assessment of each
business activity leading to the understanding of the performance of the entity as a whole.
PFRS 8 shall apply to the separate or individual financial statements of an entity, and to the
consolidated financial statements of a group with a parent:
a. Whose debt or equity instruments are traded in a public market.
b. That files or is in the process of filling the consolidated financial statements with a
securities commission or other regulatory organization for the purpose of issuing any class
of instruments in a public market.
Operating segments
An operating segment is a component of an entity:
a. That engages in business activities from which it may earn revenues and incur expenses
(including revenues and expenses relating to transactions with other components of the
same entity).
b. Whose operating results are reviewed regularly by the entity's chief operating decision
maker to make decisions about resources to be allocated to the segment and assess its
performance.
c. And for which discrete financial information is available.
Accordingly, an operating segment can generally be thought of as a distinguishable component of
an entity that is engaged in business activities which generate revenue and incur expenses.
Moreover, to be classified as an operating segment, separate financial information must be
available about the segment and its operating results shall be regularly viewed by a chief operating
decision maker.
An operating segment may engage in business activities for which it has yet to earn revenue.
Identifying operating segments
The management approach is used in identifying operating segments.
The management approach means that the operating segments are identifies on the basis of internal
reports about components of an entity that are regularly reviewed by the chief operating decision
maker in order to allocate resources to the segment and to assess its performance.
In other words, operating segments are identified based on the components of the entity that
considered to be important for internal management reporting purposes.
A component of entity that sells primarily or exclusively to other operating segments is included
in the definition of an operating segment if the entity is managed that way.
The idea is that the reporting of segment information is seen through the “eyes of management”
and users would wish to see the business as the chief operating decision maker sees it.
IFRS has abandoned the “risk and reward approach” of identifying operations by business
segments and geographical segments.
RECOGNITION
An entity shall report information about an operation segment that meets any of the following
quantitative thresholds:
1. The segment revenue, including both sales to external customers and intersegment sales of
transfers, is 10% or more of the combined revenue, internal and external, of all operating
segments.
2. The absolute amount of profit or loss of the segment is 10% or more of the greater in
absolute amount of:
a. Combined profit of all operating segments that reported a profit.
b. Combined loss of all operating segments that reported a loss.
3. The assets of the segment are 10% or more of the combined assets of all operating
segments.
Operating segments that do not meet any of the quantitative thresholds may be considered
reportable and separately disclosed on a voluntary basis if management believes that information
about the segment would be useful to the users of the financial statements.
Overall size test – 75% threshold
If the total revenue of reportable operating segments constitutes less than 75% of the entity
external revenue, additional operating segments shall be identified as reportable segments even
if they do not meet the 10% quantitative thresholds until at least 75% of the entity external revenue
is included in reportable segments.
Aggregation of segments
Two or more operating segments may be aggregated into a “single operating segment” if the
segments have similar economic characteristics and the segments share a majority of the following
five aggregation criteria:
 a. Nature of product or service
b. Nature of production process
c. Type or class of customers
d. Marketing method or the method used to distribute the product
e. The nature of the regulatory environment, for example, banking, insurance or public utility
MEASUREMENT
Measurement of segment information
 IFRS 8 requires that the amount of each segment item reported is the measure reported to
the chief operating decision maker (CODM) in internal management reports, even if this
information is not prepared in accordance with the IFRS accounting policies of the entity.
This may result in differences between the amounts reported in segment information and
those reported in the entity’s primary financial statements.
 IFRS 8 does not define terms such as ‘segment revenue’, ‘segment profit or loss’, ‘segment
assets’, and ‘segment liabilities’. As a result, diversity of reporting practice will increase.
DISCLOSURE
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
 judgements made by management in applying the aggregation criteria to allow two or
more operating segments to be aggregated
 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
amortization, income tax expense or income and material non-cash items
 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')
 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
 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
  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
 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
 information about transactions with major customers

Reference
https://www.iasplus.com/en/standards/ifrs/ifrs8
https://www.pwc.com/gx/en/ifrs-reporting/pdf/segment-reporting.pdf
https://www.ey.com/Publication/vwLUAssets/IFRS_8_Operating_segments_Implementation_gu
idance/$FILE/IFRS_8_Operating_Segments_IG.pdf