IFRS 8 Operating Segments

IFRS 8 Operating Segments
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IFRS 8 Operating Segments is a financial reporting standard that requires companies to disclose information about their operating segments in their financial statements. The standard provides rules, descriptions, examples, case studies, and new developments to help companies comply with these disclosure requirements.

 

Rules:

Under IFRS 8, a company must identify its operating segments, which are components of the company that engage in business activities from which it may earn revenues and incur expenses, and whose operating results are regularly reviewed by the company’s chief operating decision maker (CODM). If the CODM reviews the operating results of two or more operating segments together, they should be aggregated into a single operating segment.

Companies must also disclose information about their reportable segments, which are operating segments that meet certain quantitative thresholds, including:

The segment’s revenue is 10% or more of the combined revenue of all operating segments;

The segment’s profit or loss is 10% or more of the combined profit or loss of all operating segments;

The segment’s assets are 10% or more of the combined assets of all operating segments.

 

Descriptions:

The purpose of IFRS 8 is to provide users of financial statements with information about the company’s operating segments that will help them assess the company’s financial performance and prospects. The standard requires companies to disclose information about the nature of the products and services provided by each operating segment, the geographical areas in which they operate, and the major customers and suppliers of each segment.

 

Examples:

A company that manufactures and sells computers may have two operating segments: one that produces desktop computers and one that produces laptop computers. If the CODM reviews the operating results of these two segments together, they should be aggregated into a single operating segment. However, if the two segments are reviewed separately, they should be reported as separate operating segments.

A company that operates in multiple geographical areas may have several operating segments, each operating in a different region. For example, a global hotel chain may have operating segments in North America, Europe, Asia-Pacific, and Middle East/Africa.

 

Case studies:

A company that operates in the retail industry has two reportable segments: one that operates department stores and one that operates specialty stores. The department store segment has revenue of $600 million, profit of $40 million, and assets of $500 million. The specialty store segment has revenue of $300 million, profit of $20 million, and assets of $250 million. The combined revenue of both segments is $900 million, the combined profit is $60 million, and the combined assets are $750 million. Since both segments meet the quantitative thresholds, they are reportable segments and must be disclosed separately in the company’s financial statements.

 

New Developments:

There are currently no new developments in IFRS 8 Operating Segments. However, companies should continue to monitor any changes in the standard and ensure that they comply with any updates or amendments.