BA118 1 IFRS 8 Operating Segments Handout

7/29/2019 BA118 1 IFRS 8 Operating Segments Handout

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2/14/201

IFRS 8: OPERATING

SEGMENTS

2

Separate or individual financial

statements of an entity

Consolidated financial statements of a

group with a parent

whose debt or equity instruments are traded in

a public market, OR

that files, or is in the process of filing, its FS

with a securities commission...

SCOPE


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2/14/201

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What is the rule when a financial report

contains both the consolidated financial

statements of a parent that is within

the scope of this IFRS as well as the

parent's separate financial statements?

Refer to IFRS8.4

SCOPE

4

Components of an entity with the

following three characteristics:

the component engages in business activities

from which it may earn revenues and incur

expenses the component's operating results are

regularly reviewed by the CODM to make

decisions about resources to be allocated to

the segment and assess its performance

DEFINITION: Operating Segments


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Components of an entity with the

following three characteristics:

discrete financial information is available

for the component

DEFINITION: Operating Segments

6

Management Approach

CODM = function, not necessarily a

manager with a specific title

Function is to allocate resources to and

assess the performance of the

components of an entity

CEO, COO, group of executives/directors

IDENTIFYING OPERATING SEGMENTS


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2/14/201

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The COOs regularly review operating results for the

individual countries within their respective regions to

assess performance and to decide how to allocate their

regional resources to individual countries. The COOs

report regularly to the CEO, providing summaries of

their regional operating results and other financial

information but reporting individual country

information only by exception (ie when outside defined

parameters or when requested by the CEO). The CEO

then makes decisions as to how to allocate resources to

the two continental regions managed by the two COOs.

IDENTIFYING CODM

8

The COOs regularly review operating results for the

individual countries within their respective

regions to assess performance. The COOs report

regularly to the CEO, providing summaries of their

regional operating results and other financial

information, supported by an analysis of resultsbroken down by country. The CEO and the COOs

then negotiate together to agree how to allocate

resources to the regions and countries.

IDENTIFYING CODM


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Components engaged in business

activities

Pre-operating activities

Components with outputs transferred

exclusively to other segments

Corporate functions?

Post-employment benefit plans?


10

Operating results regularly reviewed

Term 'regularly' not defined, hence,

judgment needed to decide if this

condition is met



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Discrete information available

What if only gross profit margin data

is available?

What if only revenue data is

available?


12

Matrix organization

The entity has to determine which set

of components represents the

operating segments by reference to

the core principle



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An entity is permitted to aggregate

segments with similar economic

characteristics that meet certain criteria

The entity must then determine which

operating segments are reportable

REPORTABLE SEGMENTS

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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 operatingsegments

QUANTITATIVE THRESHOLDS


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B) The absolute amount of its reported

profit or loss is 10% or more of the

greater, in absolute amount, of

the combined reported profit of all

operating segments that did not report a

loss and

the combined reported loss of alloperating segments that reported a loss


16

C) Its assets are 10% or more of the

combined assets of all operating

segments



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Minimum number of reportable

segments - the 75% revenue test

External revenue - inter-segment

revenue would be eliminated on

consolidation

Additional segments should be

included to reach the 75% threshold

REPORTABLE SEGMENTS


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19

REPORTABLE SEGMENTS

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Operating segments that do not meet

any of the quantitative thresholds

may be considered reportable if

management believes that

information about that segment wouldbe useful to users of the financial

statements

REPORTABLE SEGMENTS


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Information about all remaining non-

reportable operating segments is

combined and disclosed in an 'all

other segments' category

NOT REPORTABLE SEGMENTS

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IFRS 8 does not set a precise limit but

does suggest that if the number of

reportable segments increases above

ten, the entity should consider

whether a practical limit has beenreached

NO. OF REPORTABLE SEGMENTS


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Segmental information is disclosed to

enable users of the financial statements

to evaluate the nature and financial

effects of the business activities in

which the entity engages and about the

economic environments in which it

operates

DISCLOSURES

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GR: Any changes in the identity of

reportable segments result in the

restatement of comparative figures to

reflect the reportable segments

identified at the reporting date

Exception: If the information required

to restate not available and the cost to

develop it considered excessive

RESTATEMENT


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Identify operating segments

Aggregate identified operating

segments

Measure identified operating segments

to determine reportable segments

Consider further addition of reportablesegments

SUMMARY

BA118 1 IFRS 8 Operating Segments Handout

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