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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
 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

Chief operating decision maker (CODM)

 Identifies a function
 Not necessarily a manager with a specific title
 Allocates resources to segments and assess their performance

Identifying operating segments

 “Management approach”
o Identified on the basis of internal reports about components of an entity
o Identified based on the components of the entity that are considered to be important for
internal management reporting purposes
 IFRS has abandoned the “risk and reward approach”
Reportable segments
 Quantitative thresholds:
o Segment revenue (internal and external) ≥ 10% of combined revenue (internal and external)
o Segment absolute P/L ≥ 10% of combined profit or combined loss (whichever is greater)
o Segment assets ≥ 10% of combined assets
 For operating segments that fail to meet any of the above, they 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 FS

Overall size test – 75% threshold

 If total external revenue of reportable operating segments < 75% of entity external revenue,
additional operating segments shall be identified as reportable, regardless if they meet 10%
thresholds, until at least 75% of entity external revenue is included in reportable segments

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

Limit to the number of segments

 No precise limit, but as the number increases above 10, the entity shall consider whether a practical
limit has been reached

Segment no longer reportable

 If the management judges that an operating segment identified as a reportable segment in the
immediately preceding period is of continuing significance, information about the segment shall
continue to be reported separately in the current period even if it no longer meets any of the 10%
quantitative thresholds for reportability.

Segment becoming reportable

 If an operating segment is identified as a reportable segment in the current period, segment data for
a prior period presented for comparative purposes shall be restated to reflect the newly reportable
segment even if that segment did not satisfy any of the quantitative threshold in the prior period
(unless cost inefficient)

Information to be disclosed for each reportable operating segment

 General information about operating segment
 Information about PL
 Segment assets and liabilities
 Reconciliations of the totals of segment revenue, segment PL, segment assets, segment liabilities, and
other material segment items to corresponding items in entity’s FS

Disclosure about general information

 Factors used to identify the reportable segments
 Type of products and services from which each reportable segment derives revenue
Disclosure of PL, assets and liabilities
 PL- disclose measure under all circumstances
o Disclose the following if specified amounts are included in the measure of segment profit or
loss or otherwise regularly provided to the CODM
 Revenue from external customers
 Revenue from transactions with other operating segments of the same entity
 Interest revenue
 Interest expense
 Depreciation and amortization
 Material items of income and expense
 Writedown of inventory to NRV or PPE to recoverable amount, also reversal
 Restructuring of activities of entity
 Disposal of PPE
 Disposal of investments
 Litigation settlement
 Interest in the PL of associate and joint venture – equity method
 Income tax expense
 Material noncash items other than depreciation and amortization
o Interest revenue and interest expense must be reported separately
o CODM relies primarily however on net interest revenue
 Segment revenue and segment expense
o PFRS 8 does not define any more segment revenue and expense
o Shall be the measure reported to the CODM
o Old standard:
 Segment revenue – revenue directly attributable to a segment
 Segment expense – expense resulting from operating activities directly attributable
to the segment
 Segment assets – disclose if regularly provided to CODM
o No definition from PFRS 8
o Old standard:
 Segment assets – employed by a segment in its operating activities
o Segment assets such as DTA, postemployment benefit assets, financial instruments and
rights arising under insurance contracts are not required to be disclosed
o Specific information
 Amount of investment in associate and joint venture – equity method
 Amount of addition to noncurrent assets (other than those not required)
 Segment liabilities – disclose if regularly provided to CODM
o No definition
o Old standard:
 Segment liabilities – those result from the operating activities of a segment

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

 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

Change in internal organization

 If causes composition of reportable segments to change, corresponding information for earlier
periods, including interim periods, shall be restated (unless cost inefficient)

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
o Geographical area – disclose the following:
 Revenue from external customers in country of domicile, and foreign operations in
 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