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Chapter 6 - IFRS 8: Operating Segments - Coggle Diagram
Chapter 6 - IFRS 8: Operating Segments
Introduction
IFRS 8 Operating Segments:
requires particular classes of entities - to disclose information - to enable users of its financial statements to evaluate the nature and financial effects of the different business activities
Information acquired from the internal management reports (operating segment identification & measurement of disclosed segment information)
Benefits
Revenue and sources derived from a variety of sources (many segments)
Various categories have varying potential for profitability, growth, and risk
Operational segments influence investment decisions
Scope and Objectives
IFRS 8 applies to the separate and consolidated financial statements of any entity:
(i) whose debt or equity instruments are traded in a public market, or who wishes to issue any type of instrument in a public market.
(ii) that filed or is in the process of filing its (consolidated) financial statements with a securities commission or other regulatory organization to issue any type of instrument in a public market.
Main Principles
To help the users in evaluating the nature and financial effects of the business operations in which it engages as well as the economic environments in which it operates
Operating and Reportable Segments
Operating Segments
Components of an entity about which separate financial information is evaluated regularly by management.
(usually exclude central functions that do not earn revenues themselves such as a Head Office)
According to IFRS 8, an operating segment can be defined as a component of an entity:
(i) that are operate in business form which may generate income and incur the expenses such as the income and expenses associated with transactions with other components of the same entity)
(ii) whose the outcome of its operations on a regular basis are evaluates by the entity's chief operational decision maker to decide on resources to allocate to the division and to evaluate its performance
(iii) for which specific financial data is provided
Reportable Segments
Reportable segments are operating segments that meet specified criteria:
(i) its reported revenue from external clients and intersegment sales or transfers accounts for 10% or more of its total internal and external revenue across all operating segments
(ii) the absolute measure of its reported profit or loss is 10% or more of the greater of consolidated reported profit of all operating segments that did not report loss & have reporting the loss
(iii) its assets account for 10% or more of all operating business combinations' assets
Two or more operating segments
with similar economic features and similarities in all specified respects may be merged into a single operating segment if the consolidation is consistent with the standard's key principles
If the
total external revenue reported by operating segments covers less than 75% of the entity’s revenue
, the additional segments need to be reported on (even if they do not meet the criteria in paragraph 13) until the 75% level is reached
Disclosure Requirements
General information on how the entity identifies its operating segments and the types of products and services from which each operating segment derives revenue [IFRS 8.22]
Management’s judgment in applying the consolidation criteria to permit the consolidation of two or more operating segments [IFRS 8.22(aa)]
Information on profit or loss for each reportable segment, including certain specific revenue
and expense
such as revenue from external customers and transactions with other segments, interest income and expense, depreciation and amortization, income tax expense or income and material non cash items [IFRS 8.21 (b) and 23]
Measure the total assets and total liabilities of each reportable segment, as well as the amount of investments in associates and joint ventures and the amount of new additions to certain non-current assets (“capital expenditures”) [IFRS 8.23-24]
An explanation of the measurement of segment profit or loss, segment assets and segment liabilities, including certain minimum disclosures, such as how inter-segment transactions are measured and how segment information is measured against other information included in the financial statements, and asymmetrical allocations to reportable segments [IFRS 8.27]
Information about transactions with major customers [IFRS 8.34]