Segment Reporting

Question 1

Why do listed companies produce an operating segment disclosure?

Answer 1

IFRS8 Operating Segments required listed companies to produce an operating segments disclosure to provide users of financial statements with additional information. (Financial statements are highly summarised)

Question 2

What 3 criteria make an operating segment?

Answer 2

-engages in business activities
-results are regularly reviewed by the chief operating decision maker
-discrete financial information is available
(Same as internal management reports)

Question 3

What are the 4 reasons to aggregate two or more operating segments to report as a single operating segment?

Answer 3

Similar in terms of;
-products or services they sell
-production processes
-types of customers
-distribution methods

Question 4

What are the quantitative thresholds once operating segments have been aggregated?

Answer 4

IFRS8 says an entity will disclose those that meet ONE of the following;
-revenue from internal and external sales is 10% or more of the total revenue of all segments
-assets are 10% or more of the total assets of all segments
-profit or loss is 10% or more (in absolute amount) of the combined profit/loss of all the profit/loss making segments

Other segments should be disclosed so that at least 75% of external revenue is reported.

Question 5

For each reportable segment an entity should disclose;

Answer 5

-profit or loss
-total assets
-total liabilities

Question 6

What are the 4 benefits of segment reporting?

Answer 6

-facilitates decision making
-properly asses performance and future prospects
-location = different risks
-calculate profit margins, asset utilisation and return on net assets per segment

Question 7

What are the 5?limitations of segment reporting?

Answer 7

-defining segments
-comparability between entities
-measurement of segmental information
-lack of detail
-apportionment of ‘common’ items