IFRS 8 : Operating Segments Flashcards

Question

Scope - The meaning of ‘traded in a public market’ 3 Example 32.1: The meaning of ‘public market’ in the context of a fund

Answer 1

Example 32.1: The meaning of ‘public market’ in the context of a fund

Answer 2

Such ‘public markets’ would include exchange markets, dealer markets, brokered markets, and principal-to-principal markets as described in IFRS 13 – Fair Value Measurement – and listed in that Standard as examples of markets in which fair value inputs might be observable. [IFRS 13.B34].

Answer 3

When both the consolidated financial statements and the parent’s separate or individual financial statements are contained in the same financial report, segment information is only required in the consolidated financial statements. [IFRS 8.4].

Answer 4

Entities for which IFRS 8 is not mandatory might still want to provide information about their business activities, for example about sales by segment, without triggering the need to comply fully with the Standard. The Board concluded that this would be acceptable, provided that such disclosure is not referred to as ‘segment information’. [IFRS 8.BC22]. Consequently, entities giving information about segments on a voluntary basis cannot describe that information as ‘segment information’ unless it has been prepared in compliance with IFRS 8. [IFRS 8.3].

Answer 5

IDENTIFYING A SINGLE SET OF | OPERATING SEGMENTS

Answer 6

IFRS 8 adopts a ‘bottom up’ approach to determining the level of detail required for segment reporting in the notes to the financial statements. It requires the entity’s revenue earning activities to be divided into operating segments (based on the same components used by management to run the business) and only allows that information to be aggregated for reporting purposes if specific criteria are met.

Answer 7

This process can involve considerable judgement, as it may not always be immediately clear what activities are operating segments for the purposes of the Standard or which layer of the entity’s organisational structure represents the level at which those activities are managed. This is particularly the case when management information is presented in a number of different ways (for example by product, by geographical market and by legal entity) or where management structures distinguish operational, strategic and oversight responsibilities.

Answer 8

Notwithstanding such difficulties, the requirement is to identify a single set of components as constituting the entity’s operating segments. [IFRS 8.8]

Answer 9

The process for determining operating segments is important not only to entities applying IFRS 8 for external reporting purposes, but also to entities implementing the requirements of IAS 36 – Impairment of Assets – for testing goodwill for impairment. As such, the way that operating segments are defined and determined under IFRS 8 can affect the financial statements of entities to which the disclosure requirements in IFRS 8 do not apply, such as those without traded equity or debt. This is because the Standard on impairment, applicable to all entities, states that goodwill cannot be allocated to a group of cash-generating units (CGUs) that is larger than an operating segment before aggregation (as determined below). [IAS 36.80(b)]

Answer 10

An operating segment is defined as 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 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. [IFRS 8.5].

Answer 11

This means that the determination of an entity’s operating segments starts with the smallest components of the business for which information about profit is presented for use by the entity’s chief operating decision maker (sometimes referred to as ‘CODM’).

Answer 12

A significant feature of an operating segment is the potential for revenue generation rather than actually earning revenues in the reporting period. Accordingly, a start-up operation can be treated as an operating segment while it has yet to earn revenues. [IFRS 8.5]

Answer 13

However, not every part of an entity is necessarily an operating segment. For example, a corporate headquarters or a functional department (such as a centralised data processing centre) that either does not earn revenues or for which revenues are only incidental to the activities of the entity would not be an operating segment for the purposes of IFRS 8. Similarly, an entity’s post-employment benefit plans would not be regarded as operating segments. [IFRS 8.6].

Answer 14

Arguably the most important judgements made in implementing IFRS 8 relate to the identification of the entity’s chief operating decision maker. The nature of what is ultimately disclosed in the financial statements about operating segments and the level of detail (or segmentation) required is directly related to the information regularly provided to the chief operating decision maker.

Answer 15

References in the standard to ‘chief operating decision maker’ are to the function of allocating resources and assessing performance of the operating segments and not to a manager with a specific title. Often the chief operating decision maker of an entity is its chief executive officer or chief operating officer (i.e. an individual), but the term could refer equally to a group of executive directors or others charged with that role. [IFRS 8.7].

Answer 16

The determination of chief operating decision maker will not be the same for all entities applying IFRS 8 and will depend upon the particular facts and circumstances applying to each entity, including the entity’s governance structure. However, in stating that the term could apply to a group of executive directors or others, [IFRS 8.7], the Standard is clear that the function of CODM is an executive role. While it observed that in practice the functions of CODM are sometimes carried out by multiple persons and that all such persons involved in those activities would be part of the CODM group, the Committee noted that the CODM would not normally include non-executive directors.

Answer 17

``` For example, an entity may have a single board of executive and non-executive directors which reviews the performance of individual business units, makes decisions about the operating budgets for those businesses and reviews significant applications for investment. In that case, the full board could be identified as the chief operating decision maker. However, if the entity also has a sub-committee of executive directors or another grouping of key management personnel (sometimes referred to as an ‘operational board’), this smaller group of executives would be identified as the chief operating decision maker. ```

Answer 18

Essentially, the chief operating decision maker is found at the most senior executive decision-making level of an organisation and as such should be distinguished from higher levels of management fulfilling primarily an oversight or approval role and who, to reflect their non-executive function, are provided information at a more aggregated level as a matter of course.

Answer 19

For example, in some jurisdictions, supervisory bodies may be part of an entity’s governance structure and be entrusted with significant oversight responsibilities. This role may give the supervisory body significant veto rights and rights of approval. However, that supervision will not typically represent the level of decision-making implicit in the notion of the CODM.

Answer 20

Another important distinction to be made is between chief operating decision maker and the function of ‘segment manager’. The segment manager is accountable to and maintains regular contact with the chief operating decision maker to discuss operating activities, financial results, forecasts or plans for the segment. The chief operating decision maker may also fulfil the role of segment manager for some operating segments and a single segment manager may be responsible for more than one operating segment. [IFRS 8.9]. For example, if the CODM is a group of executives, members of that group may fulfil the role of segment manager for certain components of the entity.

Answer 21

Considerations of how components of the entity are managed are relevant to the identification of an entity’s operating segments and not to how they might be reported in the financial statements. Accordingly, separate operating segments which otherwise meet the definition at 3.1 above are not aggregated into single reportable operating segments simply because they have a common segment manager. The Standard is clear that such segments are only aggregated into reportable operating segments if they exhibit similar long-term economic characteristics and are similar in respect of the qualitative criteria set out at 3.2.1 below. [IFRS 8.12]. In addition, because the oversight role of the CODM is separate from the operational role of the segment manager, it is possible that an entity could regard an investee accounted for by the equity method as an operating segment (see 3.1.5 below).

Answer 22

In practice, judgement is required to determine whether the component(s) for which a segment manager is held responsible represents one or more operating segments. For example, if targets are set by the CODM for the entire area of one segment manager’s responsibility and the remuneration of that segment manager is based on the achievement of those targets, on an aggregated basis, this could support a determination that the area of responsibility is one operating segment in the absence of other evidence indicating that the CODM reviews the results of these components separately. Equally, whilst IFRS 8 states that segment managers will generally exist, their existence is an important indicator for identifying operating segments, but not a necessary condition. The key determinant is based on the activity of the CODM with respect to the internally reported results of that component.

Answer 23

A common situation in practice is that detailed financial information is provided or available to the chief operating decision maker on a regular basis about various levels of management and operational activity within an entity. In these circumstances, the interplay between the three criteria at 3.1 above becomes very important, as the existence of more detailed internal reporting could otherwise lead to a determination that there are more operating segments. If the three criteria apply to more than one set of components of an entity, but there is only one set that has segment managers, generally the set of components with segment managers constitutes the operating segments. [IFRS 8.8].

Answer 24

Example 32.2: Identifying operating segments – CODM and segment manager

Answer 25

Proper application of the requirements of IFRS 8 requires a clear understanding of what information is given to the chief operating decision maker and how the CODM uses that information, in conjunction with the segment managers. In the above example, the fact that the CODM receives detailed financial information about activities below the divisional level could raise doubts about the determination that the divisions represent the entity’s operating segments, rather than the business units.

Answer 26

In these circumstances, entities would be required to demonstrate that: • the more detailed information is not used by the CODM to assess performance and allocate resources; • segment managers operate only at the divisional level and are not, in effect, managers for each of the business units in their division. As noted above, components otherwise meeting the characteristics of an operating segment under IFRS 8 are not combined simply because they share a segment manager. must be fullfil aggregation criteria.)

Answer 27

It might be evident from the records of the discussions between segment managers and the CODM that results are monitored at divisional rather than at business unit level. It might equally be clear from the records of board meetings that more detailed information is not referred to by the CODM in its deliberations. However, there is evidence that when regulators and other enforcement agencies assess the quality of an entity’s compliance with IFRS 8, they adopt the presumption that the CODM uses whatever detailed information is provided to him/her on a regular basis for decision making and assessment purposes

Answer 28

As noted above, a component of an entity can only be regarded as an operating segment if discrete financial information is available about that component. [IFRS 8.5(c)]. This requirement relates solely to the existence of discrete information that allows the chief operating decision maker to make decisions about the allocation of resources and to assess the performance of that component.

Answer 29

Accordingly, a component of an entity is still regarded as an operating segment if the only information available relates to the profitability of that component. Such information would be sufficient for the chief operating decision maker to review its operating results, assess performance and make decisions about resource allocation. [IFRS 8.5(b)]. The financial information is not rendered useless by the lack of, for example, a separate statement of financial position or a separate statement of cash flows for that component.

Answer 30

However, it would be unlikely that a component of an entity could be regarded as an operating segment solely because the chief operating decision maker receives information about revenue from that component. Without a measure of the component’s operating results it would be difficult to make meaningful assessments of the effect of allocating more or less resource to that activity. As such, information on revenue alone would have limited value in decision making. Therefore, the search for an entity’s operating segments starts with the smallest components of the business for which a measure of profitability is provided to the entity’s CODM.

Answer 31

For many entities, the search for operating segments is concluded after applying the three criteria listed at 3.1 above. However, in cases where a single set of operating segments cannot be identified clearly by applying the above criteria, for example in an entity where its business activities are reported internally and assessed in a variety of ways, IFRS 8 states that other factors should be considered, including the nature of the business activities of each component, the existence of a manager responsible for it, and the information presented to the board of directors. [IFRS 8.8].

Answer 32

Therefore, if an entity’s activities are reported internally in a number of different ways, each with their own set of business components as defined above, but there is only one set to which segment managers are assigned, then that will comprise the operating segments to report in the financial statements for IFRS 8 purposes. [IFRS 8.9]. For example, if an entity’s board of directors manages its business using information on revenues and costs analysed both by product grouping as well as by geographical market, but the management structure operates only on geographical lines, then the financial statements would include segmental information on a geographical basis.

Answer 33

A single set of operating segments must be identified, even where two or more sets of components of an entity are managed in a matrix structure, for example where financial information is available and performance is assessed and segment managers assigned not only on the basis of product and service lines worldwide but also by geographical area irrespective of products and service lines. In that situation the choice of a single set of components is a matter of judgement, made by reference to the core principle of the Standard as set out at 2.1 (objective) above. [IFRS 8.10]

Answer 34

The definition of an operating segment focuses on the review of its operating results by the entity’s chief operating decision maker and the assessment of its performance and the allocation of resources to it by the CODM. [IFRS 8.5(b)]. This raises the question of whether the reporting entity needs to have control over the activities conducted in what otherwise would meet the definition of an operating segment, or whether it is sufficient that the CODM reviews its results and this review influences decisions about investment in those activities. In our view, control over the activities in which the entity is investing is not a requirement.

Answer 35

For example, an equity method investee (i.e. associate or joint venture) could be considered an operating segment, if it meets the criteria in IFRS 8. The CODM may regularly review the operating results and performance of an equity method investee for the purposes of making additional investments or advances, evaluating financial performance or evaluating whether to retain its investment. The CODM is not required to be responsible for making decisions at the investee operating level that affect the investee’s operations and performance in order for it to be identified as an operating segment.

Answer 36

Further, the definition of an operating segment does not require that the revenue generating activities of the investee are included in the entity’s revenue as reported in the IFRS financial statements. Segment performance could be measured by reference to the amounts included in the entity’s IFRS financial statements or equally by reference to the financial information prepared by the investee itself. Any difference between the measures used by the CODM and the accounting treatment under IFRS would be reported as a reconciling item in the entity’s disclosures under IFRS 8.

Answer 37

This view is consistent with the disclosure requirements of IFRS 8, which require the entity’s share of the profits and losses of equity accounted associates and joint ventures and the amount of investment in equity accounted investees to be presented, if those amounts are included in the measures reviewed by the CODM of segment profit or loss and segment assets respectively (see 5.3 and 5.4 below). [IFRS 8.23(g), IFRS 8.24(a)].

Answer 38

Thereafter, an entity is only compelled to give information on other segments (either individually or in certain circumstances on a combined basis) if the unallocated element is too large (see ‘All other segments’ below). The implementation guidance to IFRS 8 includes a diagram illustrating how to apply the main provisions of the Standard for identifying reportable segments, which is reproduced below: see OneNote

Answer 39

IFRS 8 does not permit the omission of segment information when management believe that its disclosure is commercially sensitive or potentially detrimental to the entity’s competitive position. If the criteria for separate disclosure described at Quantitative thresholds – operating segments which are reportable because of their size and ‘All other segments’ below are met, an entity is compelled to give information on that operating segment in the financial statements. The IASB considered both a general ‘competitive harm’ exemption and a ‘comply or explain’ basis for disclosure and rejected both. [IFRS 8.BC43-45].

Answer 40

However, reporting separate information about every operating segment that the CODM reviews separately may not enhance the financial statement user’s understanding of the business, particularly when two or more of the operating segments are so similar that they ‘can be expected to have the same future prospects.’ [IFRS 8.BC Appendix A73].

Answer 41

(a) the nature of the products and services; (b) the nature of the production processes; (c) the type or class of customer for the products and services; (d) the methods used to distribute the products or provide the services; and (e) if applicable, the nature of the regulatory environment. [IFRS 8.12].

Answer 42

At this stage in the process only segments which are similar in all the above respects can be aggregated into single reportable segments, which can require judgment. Further aggregation can only be achieved for segments which do not merit separate disclosure by virtue of their size (see Quantitative thresholds – operating segments which are reportable because of their size below).

Answer 43

The fact that certain operating segments have been selected by management as a separately reportable component of activities in the business would suggest that there are good commercial reasons why their performance is monitored separately by the CODM and, therefore, might usefully be reported separately to users of the financial statements. Only if those components exhibit similar economic characteristics does their aggregation not compromise the entity’s ability to achieve the core principle of IFRS 8, to disclose information that is useful to users of its financial statements. [IFRS 8.BC32].

Answer 44

(a) The nature of the products and services. Similar products or services generally will have similar purposes or end uses. Thus, they may be similar types and degrees of risk and similar opportunities for growth. We believe that it often will be appropriate to evaluate the similarity of products or services based on the range of activities of the organisation. For example, a highly diversified company that manufactures a variety of consumer products, provides financial services and has a construction business may determine that all of its consumer products are similar. However, an entity that only sells consumer products might determine that not all of its consumer products are similar;

Answer 45

Example 32.3: Similar production process Assume that Life Co., a life sciences company manufactures various pharmaceutical products for commercial sale. These products include cold medicines and diet pills. Each product is manufactured through the same production process, even though the products have different applications. Both products consist of various chemical compounds that are mixed together in batches to create the end product. Both products undergo quality control testing in order to confirm the efficacy of the product. Both products also use the same manufacturing equipment for parts of the production process. Thus, Life Co. concludes that for the purposes of the segment aggregation criteria, the production processes are similar, despite the differences in the applications of the end products.

Answer 46

Example 32.4: Type and class of customer Market Co., a diversified clothing manufacturer has two operating segments, Retail and Wholesale. Retail primarily markets its products to consumers through electronic and print advertising. In contrast, Wholesale principally markets its products through a network of sales representatives who call upon the distributors to purchase the products. In considering the type or class of customer, Market Co. concludes that the type and class of customer are not similar for the two operating segments based upon the distinction between retail and wholesale as well as the primary marketing methods for its products. As such, aggregation of the two operating segments would not be permitted.

Answer 47

Example 32.5: Retail outlets and internet distribution Software Co., a software retailer, has two operating segments: Retail, which distributes its products through retail outlets, and Internet, which distributes its products through a website on the internet. In evaluating whether these operating segments can be aggregated, Software Co., might conclude that the methods to distribute its products are not similar because Retail and Internet distribute products through different distribution channels.

Answer 48

For example, it may not be appropriate for an entity to aggregate an operating segment that produces a product under government contracts together with an operating segment that produces the same product for commercial purposes. Some entities are comprised of operating segments that operate within different regulatory environments. We believe that the nature of the regulatory environments in which two or more operating segments operate can be regarded as similar, even if the regulatory bodies are not the same.

Answer 49

Example 32.6: Aggregating internally reported operating segments with similar characteristics into a single reportable operating segment, see OneNote

Answer 50

While IFRS 8 includes long-term gross margin as an example of similar economic characteristics, if the CODM uses a different measure of profit or loss (e.g. EBITDA) to assess performance and allocate resources to each operating segment, that measure of profit or loss should also be considered when assessing whether operating segments possess similar economic characteristics. In addition, if other economic measures are provided to the CODM, the similarities of those economic measures should also be considered. For example, if the CODM uses sales metrics, return on investment, or other standard industry measures, those metrics may also be relevant in determining economic similarity.

Answer 51

Conversely, if operating segments happen to have similar gross margins or sales trends in a given year but it is not expected that the similar gross margins or sales trends will continue in the future, the operating segments should not be aggregated for the current-year segment disclosures just because current economic measures happen to be similar. It follows that operating segments that have been profitable over the longer term should not be combined with segments that over the longer term have been consistently loss-making.

Answer 52

IFRS 8 does not define the term ‘similar’ and does not provide guidance about what is similar for aggregation purposes. As the above discussion indicates, the determination of whether two or more operating segments are similar requires judgment and is dependent on the individual facts and circumstances.

Answer 53

(a) its reported revenue (including both sales to external customers and intersegment sales or transfers) is 10% or more of the combined revenue (internal and external) of all operating segments; or (b) its reported profit or loss is, in absolute terms, 10% or more of the greater of: (i) the combined profit of all operating segments that did not report a loss; or (ii) the combined loss of all operating segments that reported a loss; or (c) its assets are 10% or more of the combined assets of all operating segments. [IFRS 8.13]

Answer 54

Example 32.7: Identifying reportable segments using the quantitative thresholds, see OneNote

Answer 55

Even if an internally reported operating segment falls below all of the quantitative thresholds, it may still be considered as reportable, and separately disclosed, if management believes information about the segment would be useful to users of the financial statements. [IFRS 8.13]. Where information about segment assets is not disclosed under IFRS 8 because it is not provided regularly to the CODM, [IFRS 8.23], it would be appropriate to ignore criterion (c) above for determining the reportable segments.

Answer 56

For the avoidance of doubt, if an entity proposes to combine a small operating segment with one that exceeds any of the quantitative thresholds, they must share all of the criteria described at Aggregation criteria – aggregating internally reported operating segments into single reportable operating segments above. The requirement that combining segments must demonstrate similar economic characteristics applies to combinations of both larger and smaller operating segments into reportable segments, without exception.

Answer 57

The entity may then be left with a number of operating segments which have not been identified as being reportable, as well as other business activities that are not an operating segment or part of an operating segment.

Answer 58

However, this residual category cannot be too large. If total external revenue for the operating segments already reported separately is less than 75% of the entity’s revenue, the entity should identify additional operating segments for external reporting until the 75% target is reached. In this situation, segments would have to be reported separately even if they fall below the quantitative thresholds described at Quantitative thresholds – operating segments which are reportable because of their size above, and are not otherwise regarded as being significant. [IFRS 8.15]

Answer 59

Example 32.8: Reaching the threshold of 75% of external revenue, see OneNote

Answer 60

The description of ‘all other segments’ refers to ‘other business activities and operating segments’. [IFRS 8.16]. It could be argued that central functions are not business activities, but support functions which should be part of the reconciliation. On the other hand, they could be regarded as incidental business activities. There is no guidance to suggest that either presentation is ruled out by the Standard.

Answer 61

Without prescribing such a limit, it suggests that an entity expecting to disclose more than 10 separate reportable segments should consider whether the practical limit has been reached. [IFRS 8.19]. IFRS 8 states that there may be a practical limit to the number of separately reportable segments beyond which segment information may become too detailed. Without prescribing such a limit, it suggests that an entity expecting to disclose more than 10 separate reportable segments should consider whether the practical limit has been reached. [IFRS 8.19].

Answer 62

Only if the necessary information is not available and the cost to develop it would be excessive would prior periods not be restated. [IFRS 8.18].

Answer 63

MEASUREMENT

Answer 64

For example, management might include gains on sale of property, plant and equipment in its measure of segment revenue but not be permitted to do so in its financial statements. [IAS 16.68].

Answer 65

Any adjustments and eliminations made in preparing an entity’s financial statements shall be included in determining segment results only if they are included in the measure of the segment’s results used by the chief operating decision maker.

Answer 66

 The nature of any differences between the measurement of the reportable segments’ liabilities and the liabilities of the entity.  The nature of any changes from prior periods in measurement methods used to determine segment profit or loss and the effect on profit or loss from those changes.  The nature of asymmetrical allocations to reportable segments. For example, a reportable segment may be charged the depreciation expense for a particular asset but the depreciable asset might not have been allocated to the segment.

Answer 67

INFORMATION TO BE DISCLOSED ABOUT REPORTABLE SEGMENTS

Answer 68

(a) general information on segments identified for reporting; (b) reported segment profit or loss, including information about specified revenues and expenses included in reported segment profit or loss, segment assets and segment liabilities (if reported to the CODM) and the basis of measurement; and (c) reconciliations of the totals of segment revenues, reported segment profit or loss, segment assets, segment liabilities and other material segment items to the corresponding entity amounts in the financial statements. [IFRS 8.21].

Answer 69

As discussed at ‘Chief operating decision maker’ and ‘segment manager’ above, the identification of the chief operating decision maker can be a critical judgment in applying IFRS 8 because of its potential impact on what information is considered for disclosure. However, there has been no explicit requirement in the Standard to identify the CODM.

Answer 70

The description would also indicate whether operating segments have been aggregated. The general information on reportable segments would include a description of the types of products and services from which each reportable segment derives its revenues. [IFRS 8.22]. The disclosures should also include a description of the sources of the revenue classified in the ‘all other segments’ category. [IFRS 8.16].

Answer 71

The aggregation criteria are discussed at Aggregation criteria – aggregating internally reported operating segments into single reportable operating segments, above.

Answer 72

This ‘measure’ means segment profit or loss and segment assets and liabilities as defined in the information used by the chief operating decision maker.

Answer 73

Examples include key measures based on capital invested like return on capital employed (ROCE), free cash flow or orders on hand. Since these are not measures of profit or loss, they would not need to be disclosed. However, the Standard does not prohibit their disclosure.

Answer 74

(d) interest expense; (e) depreciation and amortisation; (f) material items of income and expense disclosed in accordance with paragraph 97 of IAS 1 – Presentation of Financial Statements; (g) the entity’s interest in the profit or loss of associates and joint ventures accounted for by the equity method; (h) income tax expense or income; and (i) material non-cash items other than depreciation and amortisation. [IFRS 8.23].

Answer 75

Where the measure of segment profit or loss is determined after deducting depreciation and amortisation, these amounts will have to be disclosed separately for purposes of segment reporting, even if they are not separately reported to the CODM.

Answer 76

This means that different entities (even those with very similar activities) will make different disclosures, depending on what information is provided to the chief operating decision maker. Indeed, what is disclosed by one entity for each of its reportable segments might vary because, for example, the result of one segment is determined after deducting interest whilst that of other segments is drawn before interest; or because the information provided to the chief operating decision maker about one segment includes equity-accounted associates but for other segments does not. As such the disclosures made by an entity are tailored according to exactly what appears in the information presented to the chief operating decision maker.

Answer 77

(a) the investment in equity-accounted associates and joint ventures; and (b) total expenditures for additions to non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets and rights arising under insurance contracts. [IFRS 8.24].

Answer 78

(d) the nature of any differences between the measurements of total reported segment liabilities and the entity’s liabilities, if not apparent from the required reconciliations; (e) the nature of any changes from prior periods in the measurement methods used to determine segment profit or loss, including the financial effect, if any, of those changes; and (f) the nature and effect of any asymmetrical allocations to reportable segments, such as where depreciation is included in segment profit but the related property, plant and equipment is not included in segment assets. [IFRS 8.27].

Answer 79

(d) the nature of any differences between the measurements of total reported segment liabilities and the entity’s liabilities, if not apparent from the required reconciliations; (e) the nature of any changes from prior periods in the measurement methods used to determine segment profit or loss, including the financial effect, if any, of those changes; and (f) the nature and effect of any asymmetrical allocations to reportable segments, such as where depreciation is included in segment profit but the related property, plant and equipment is not included in segment assets. [IFRS 8.27].

Answer 80

(c) if segment assets are reported (see 5.2 above), the total of the reportable segments’ assets to the entity’s assets; (d) if segment liabilities are reported (see 5.2 above), the total of reportable segments’ liabilities to the entity’s liabilities; and (e) for every other material item of information the entity chooses to give in its segment information, the total of each item from all reportable segments to the corresponding amount for the entity. [IFRS 8.28].

Answer 81

In addition, IFRS 8 requires information about the ‘all other segments’ category to be shown separately from other reconciling items. [IFRS 8.16].

Answer 82

However, it does not explicitly address any changes that | impact reportable segments, such as a change in segment measures. This is discussed further below.

Answer 83

The exemption from restatement on grounds of excessive cost is applied to each individual item of disclosure. [IFRS 8.29]. This means that an entity should restate its comparative information for all the items it can, even if this results in some comparative information not being presented or restated, such as inter-segment revenues. When the composition of reportable segments has changed, an entity should disclose whether the corresponding items of segment information have been restated. [IFRS 8.29].

Answer 84

In our view, given the importance of comparable segment information in particular in years of changing segmentation, the ‘excessive cost’ criterion represents a high hurdle to overcome. If an entity decides to change its organisational structure during the reporting period, the fact that this requirement applies equally to interim periods [IFRS 8.29] indicates that information presented at the reporting date is also restated to reflect the new basis of segmentation, even though for part of the annual reporting period the entity was managed and monitored on the old basis.

Answer 85

Since IFRS 8 does not refer to discontinued operations, entities are not required to include them in their segment disclosures. This would be the case even if the CODM continued to monitor the discontinued operation until disposal. Nevertheless, an entity would not be prohibited from disclosing such information if it wished, on the basis that the requirements of IFRS 8 relate to the measures reported to the CODM without any adjustments being made in preparing the entity’s IFRS financial statements. [IFRS 8.25]

Answer 86

Therefore, comparative information would be restated, unless this is impracticable. [IAS 1.41].

Answer 87

The interaction between these criteria, in particular with the requirement that segments cannot be combined if they exhibit different long-term financial performance, leaves entities open to the risk of having to disclose information that management would be concerned about sharing with competitors, customers, suppliers or employees.

Answer 88

The only justification for failing to meet these requirements is if disclosure would be so misleading that it would conflict with the objective of financial statements set out in the IASB’s Conceptual Framework. [IAS 1.19]

Answer 89

This concern was raised again by respondents to the post-implementation review. However, the IASB continues to reject such a limitation, because it would provide a means for broad-based non compliance with the standard.

Answer 90

ENTITY-WIDE DISCLOSURES FOR ALL ENTITIES

Answer 91

The amounts reported about products and services and about geographical areas in these entity-wide disclosures are measured using the same accounting policies and estimates as the entity’s financial statements (i.e. IFRS amounts). [IFRS 8.32-33]. As such, the amounts disclosed in this part of the segment disclosures might well be different to the information already provided in other segment information, which might not be measured in accordance with IFRS.

Answer 92

However, the IASB did not see any merit in divergence from FASB ASC Topic 280 in this respect and therefore retained the exemption from disclosure if the necessary information were unavailable and the cost of developing it excessive. [IFRS 8.BC46-47].

Answer 93

An entity should report revenues from external customers for each product and service or for each group of similar products and services, measuring revenues on the same basis as the entity’s financial statements. [IFRS 8.32].

Answer 94

In addition, if revenues from external customers or assets attributed to an individual foreign country are material, separate disclosure of that country’s revenues or assets is required. [IFRS 8.33]. The Standard does not indicate what might be regarded as ‘material’, but given the criteria for a reportable segment and a major customer for reporting purposes (see Quantitative thresholds – operating segments which are reportable because of their size above and Information about major customers below respectively) it would seem appropriate to consider the need for separate disclosure in respect of a foreign country accounting for more than 10% of total external revenues or more than 10% of total non-current assets.

Answer 95

The basis on which revenues from external customers are attributed to individual countries should be disclosed. An entity can elect to provide, in addition to the information required above, subtotals of geographical information about groups of countries. [IFRS 8.33].

Answer 96

Disclosure is not required of the name of each major customer, nor the amounts of revenue reported in each segment for that customer. [IFRS 8.34]. However, the disclosure must be provided if it relates only to one segment.

Answer 97

The assessment of whether entities should be regarded as a single customer for these purposes should take into account the extent of economic integration between those entities. [IFRS 8.34]. The standard does not include any further guidance on the factors relevant to determining the extent of economic integration.

Answer 98

ASSESSING SEGMENTAL REPORTING

Answer 99

* Different parts of the business will have different growth opportunities. Segmental information may therefore help investors to better predict future performance and future cash flows. * Geographical disclosures are useful for investors in multi-national businesses because each country/location may face different risks (including political risks) and growth rates.

Answer 100

Moreover, segmental reporting is relatively cheap for entities to comply with because the information required is already produced for internal use. Therefore, the benefits of this information far exceed the cost of production.

Answer 101

* The segmentation process is based on management's perspective, and some users lack trust in management's intentions. For example, management may attempt to conceal loss-making areas of the business within a larger, profitable reportable segment. * Common costs may be allocated to different segments on whatever basis the directors believe is reasonable. This can lead to arbitrary allocation of these costs.

Answer 102

 the type or class of customer for their products and services  the methods used to distribute their products or provide their services, and  if applicable, the nature of the regulatory environment, for example, banking insurance or public utilities.

Answer 103

 its reported profit is 10% or more of the greater of the combined profit of all segments that did not report a loss and the combined reporting loss of all segments that reported a loss  its assets are 10% or more of the combined assets of all operating segments

Answer 104

If the total external revenue reported by operating segments constitutes less than 75% of the entity’s total revenue, then additional operating segments must be identified as reporting segments, even if they do not meet the criteria, until 75% of revenue is included in reportable segments.

Answer 105

 a measure of profit or loss for each reportable segment  a measure of total assets liabilities for each reportable segment if such an amount is reported regularly to the chief operating decision maker

Answer 106

- depreciation and amortisation - material items of income and expense in accordance with IAS 1 - the entity’s interest in the profit or loss of associates and joint ventures accounted for by the equity method - income tax expense or income - material non-cash items other than depreciation and amortisation.

Answer 107

Also, the factors used to identify the entity’s reportable segments, including the basis of organisation, (i.e. whether the entity is organised around different products and services or geographical area), and the types of products and service from which the reportable segments derive their income must all be disclosed.

Answer 108

Measurement - as above

Answer 109

 Non-current assets located in the country of domicile and located in all foreign countries in total where the entity holds assets.  If revenue from any customer is more than 10% of total revenue then it must be disclosed along with the total of revenues from these customers and the identity of the segment reporting the revenue.