Operating Segments – Ifrs 8


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Operating Segments – Ifrs 8

  1. 1. Operating Segments – IFRS 8<br />Effective date 1st January 2009<br />
  2. 2. Objective<br />The reader of financial statements should understand the nature and financial effects of various activities of the company.<br />
  3. 3. What are Operating/Reporting segments? <br /><ul><li>These are components of a business
  4. 4. Separate financial information should be available for these components</li></li></ul><li>More features on segments<br /><ul><li>A segment depends on internal management reporting pattern
  5. 5. Segments are reported in terms of products, services, regions, major customers etc.
  6. 6. The chief decision makers review segments for performance and allocation of funds.</li></li></ul><li>Similar segments<br /><ul><li>When segments are similar then we can combine two or more segments into one segment
  7. 7. Such similarities should be in terms of
  8. 8. Products
  9. 9. Services
  10. 10. Customers
  11. 11. Distribution process
  12. 12. Regulatory environment (Banking, Insurance etc)</li></li></ul><li>Tests to recognize a segment<br />If the segment has:<br />10% or more of combined revenue<br />10% or more of combined profit or loss<br />10% or more of combined assets<br />If not any of the above but management wants a segment to be reported<br />If a segment was reported last year does not satisfy the criteria this year- include the segment<br />If a segment is reported this year but was not present last year - include it for previous year’s comparison <br />
  13. 13. Total threshold<br />If after segmentation, total segmental revenue, operating costs, assets, liabilities do not reach 75% each of the company total, then additional segments should be reported to reach the 75% level. <br />As a reconciling item, group all other segments.<br />
  14. 14. Disclosures 1<br />Disclose the following segmental information:<br /><ul><li>Operating revenue
  15. 15. Operating costs
  16. 16. Assets
  17. 17. Liabilities
  18. 18. Reconcile all the above to the totals on the financial statements</li></li></ul><li>Disclosures 2<br />Further segmental disclosures will be as follows:<br /><ul><li>Revenue from customers
  19. 19. Inter departmental revenues
  20. 20. Interest revenue
  21. 21. Interest expense
  22. 22. Depreciation and amortization
  23. 23. Other material items (as per paragraph 97 of IAS 1)
  24. 24. Equity method of accounting of associates and joint ventures (amount of investments)
  25. 25. Other non cash items
  26. 26. Additions to fixed assets (non financial instruments).</li></li></ul><li>Measurements<br /><ul><li>Allocate all assets, liabilities, profit / losses on a reasonable basis
  27. 27. Please ensure consistency
  28. 28. As an explanation as to how we have measured a segment, disclose the basis of accounting (such as accrual basis)
  29. 29. Explain if there is any difference of measurements between the segments and the company. These differences could be for accounting policies, centrally incurred costs etc.</li></li></ul><li>Reconciliations<br />There should be reconciliations between segmental totals and the company totals for the following:<br />Revenue<br />Net profit (before tax or discontinued operations)<br />Assets<br />Liabilities<br />Material items<br />
  30. 30. Re-statement of information<br />If the company structure changes then restate the earlier periods<br />Following a change, disclose whether earlier information is restated<br />If earlier information is not restated, then disclose the current segment information in the old and new format.<br />This information should be provided unless the information is not available or the cost to produce it is prohibitive.<br />
  31. 31. Other disclosures<br /><ul><li>If information is not provided segment-wise then disclose revenue per product
  32. 32. Disclose revenue from external customers separating between the country of domicile and foreign countries (if substantial)
  33. 33. The extent of reliance on major customers (such as if 10% of revenue is earned from one customer)
  34. 34. For group companies under common control, consider as one customer. </li></li></ul><li>Effective date and application<br /><ul><li>The standard is applicable effective 1st January 2009
  35. 35. Segmental information is required for interim financial statements also.</li>