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Entities diversify their operations for several reasons, such as desire of management to spread the
risks of investment over a number of industries and product lines to reduce dependence on any one
set of suppliers and customers
When diversified, the different industry segments in effect operate as SEPARATE ENTITIES within an
overall corporate umbrella
Segment reporting
PFRS 8: sets out requirements for disclosure of information about operating segments
Core principle: 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
o “product and services”
o “geographical areas”
Scope of PFRS 8
Separate or individual FS of an entity, and to consolidated FS of a group with a parent:
o Whose debt or equity instruments are traded in a public market
o Files or is in the process of filing the consolidated FS with a securities commission or other
regulatory organization for the purpose of issuing any class of instruments in a public
market
NOTE: if financial report contains both conso FS of a parent and its separate FS, segment information
is required only in the conso FS
Operating segment
Component of an entity:
o That engages in business activities from which it may earn revenue and incur expenses
o Whose operating results are regularly reviewed by the CODM
o For which discrete financial information is available
An operating segment may engage in business activities for which it has yet to earn revenue
o E.g. start-up operations may be operating segments before earning revenue
Not every part of an entity is necessarily an operating segment
An entity’s postemployment benefit plan is not also an operating segment
Aggregation of segments
May be aggregated into a single operating segment if possess similar economic characteristics and
segments share MAJORITY of the following criteria:
o Nature of product or services
o Nature of production process
o Type or class of customers
o Marketing method
o Nature of the regulatory environment
Other disclosures
Other items are disclosed only because these are included in the measure of PL, assets, and liabilities
reviewed by CODM
Impairment loss – disclosed because material
Reconciliations
Provide for:
o Total revenue of all reportable segments to total entity revenue
o Total PL of all reportable segments to total entity PL (before IT and discontinued operations)
o Total assets of all reportable segments to entity total assets
o Total liabilities of all reportable segments to entity total liabilities
o Total for every other material item disclosed to corresponding amount for entity
Entity-wide disclosures
Additional information required to be disclosed by entities if not provided as part of reportable
segment information
o Products and services – disclose revenue from external customers for each product and
services
o Geographical area – disclose the following:
Revenue from external customers in country of domicile, and foreign operations in
total
Material revenue from external customers in an individual foreign country
Basis for attributing revenue from external customers to individual countries
Noncurrent assets (aside from previously mentioned)
o Major customers – entity shall provide information about the extent of reliance on major
customers, disclose the following:
Fact of reliance
Total revenue from major customers
Identity of segment or segments reporting the revenue