IFRS 8: Operating Segments

The IASB did not intend to change the range of entities required to present segment information, but we believe IFRS 8 has a wider scope than IAS 14. It applies to entities whose equity or debt securities are publicly traded or that issue, or are in the process of issuing, any class of instrument in a public market.

An “operating segment” is a component of a public entity that engages in business activities for which discrete. financial information is both available and regularly reviewed by the chief operating decision-maker (CODM) for the. purpose of making operating decisions about the allocation of resources.

75% “Reporting Sufficiency” Test: if the total (consolidated) revenue reported by operating segments constitutes less than 75% of external (consolidated) revenue, additional segments need to be identified as reportable, even if they don’t meet the 10% tests, until at least 75% of external revenue is included in reportable segments.

-The practical limit to the number of segments is 10, which is not a precise limit.

In general, IFRS 8 has a management approach to the identification of operating segments and its aim is to enable the users to see an entity through the eyes of management. It is sometimes the case that CODM regularly reviews information on different product lines and geographical regions at the same time.

IFRS 8 requires an entity whose debt or equity securities are publicly traded to disclose information to enable users of its financial statements to evaluate the nature and financial effects of the different business activities in which it engages and the different economic environments in which it operates.

IFRS 8 applies to the financial statements of any entity whose debt or equity instruments are traded in a public market or who is seeking to issue any class of instruments in a public market.

IFRS 8 requires an entity whose debt or equity securities are publicly traded to disclose information to enable users of its financial statements to evaluate the nature and financial effects of the different business activities in which it engages and the different economic environments in which it operates.

According to IAS Plus, a reportable segment is defined by IFRS 8, which states that this segment’s financial data must be reviewed separately by the highest decision-makers of the business. In a corporation, the highest decision-makers are often the executives of the company, such as the chief executive officer.