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IFRS-8 Operating Segment


This standard requires an entity whose debt/equity securities are traded publically to disclose details to allow users of its Financial Statements (FS) to evaluate the nature and financial effects of the various business activities in which it is engaged and different economic environment in which it operates. However, when both separate & consolidated FS for the holding is presented in a single financial report, segment information needs to be offered based on the compressed FS.

Core principal
Its core principle is an entity should disclose information to help users of its FS to assess the nature and financial effects of the varied business activities in which it operates and the economic environments in which it functions. 

Operating segments
This standard defines operating segment as follows:

  • That engaged in activities of the business from which it earns incomes and incurs expenses
  • Whose outcomes of operations are analyzed consistently by the entity’s chief operating decision-maker to make decisions about resources to be assigned to each segment and evaluate its performance; and
  • For which different financial information is accessible. Not all functions of an entity will necessarily be an operating segment.

For example, the corporate headquarters or some operational departments may not earn income or earn incomes that are only related to business activity. These would not be operating segments. In addition, IFRS 8 mentions specifically that a company’s post-retirement benefit plans are not operating segments.

Reportable segments
Information is necessary to be disclosed about any operating segment that fulfils any of the following quantitative limits: 

  • Its reported turnover external as well as intersegment is 10 per cent or more of the total turnover, internal and external, of all operating segments
  • The total measure of its reported profit/loss is 10 per cent or more of the greater, in absolute amount, of
    • the collective reported income of all operating segments that did not report a loss and
    • the collective reported loss of all functional components that reported a loss; or
  • In case assets are 10 per cent or above the total assets of all operating segments.
  • Suppose the total external turnover reported by operating segments constitutes less than 75 percent of the entity’s total turnover. In that case, additional operating segments must be identified as reportable segments (even if they do not meet the quantitative limits mentioned above) until at least 75 per cent of the entity’s turnover is included in reportable segments.

Disclosure requirements
Disclosures in IFRS 8 are that an entity should reveal ‘information to help users of its FS to assess the nature and financial effects of different business activities in which it operates and the economic environments in which it engages.’ In fulfilling this principle, an entity must disclose:

  • General data about how the entity recognized its operating segments and the different varieties of products and services from which each operating segment yields its revenues;
  • Information about the reported segment profit/loss, including certain specified revenues and expenses included in segment profit/loss, segment assets and liabilities and the basis of evaluation; and
  • Mapping the totals of segment revenues, reported segment profit/loss, segment assets, segment liabilities and other material items to corresponding items in the entity’s FS.

Additionally, prescribed entity-wide disclosures are required even if an entity has only one reportable segment. These comprise information about each product and service or groups of products and services. For example, evaluation of revenues and certain long term assets by geographical area are required – with an expanded requirement to disclose revenues or assets by a separate foreign country (if material), irrespective of the identification of operating segments. If the information mandatory for these measurements is not available, and the cost to develop it would be more, that fact must be disclosed. IFRS 8 has also introduced a need to disclose information about transactions with big customers. If revenues from transactions with one external customer amount to 10 per cent or more of the entity’s revenues, the entire revenue from each customer and the segment/segments in which those turnovers are reported must be disclosed. The entity is not required to disclose major customers’ identities or the amount of sales that each segment reports from that customer. For this purpose, a group of entities known to the reporting entity to be under common control will be considered a single customer, and the government and the entities known to the reporting entity to be under the control of that government will be considered one customer.

At AJSH, we assist our clients in bookkeeping, payroll, auditing, taxation, secretarial compliances and preparation of financial statements ensuring compliance with applicable standards. If you have any questions or wish to know more about IFRS-8, kindly contact us.


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