2. Introduction
• Information about an entity’s different products and services,
major customers and geographical areas will be relevant in
assessing the risks and returns of multinationals and/or
diversified entities.
• Segment reporting enables:
1. The entity’s past performance be better understood
2. The entity’s risks and returns be better assessed
3. More informed judgements about the entity as a whole
3. • The standard is applicable to entities whose equity or debt
securities are publicly traded, or file (or in the process of filing)
financial statements for the purpose of issuing securities in a
public market.
• This standard is to be applied in complete sets of published
financial statements that comply with Malaysian Financial
Reporting Standards. Complete set of financial statements include
the statement of financial position, statement of profit or loss and
other comprehensive income, statement of cash flows, statement
of changes in equity and notes.
• An entity that presents its own and consolidated financial
statements has to present information on its reportable segments
only on the basis of the consolidated financial statements.
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MFRS 8
4. Operating Segments
An operating segment is a component of an entity:
a. That engages in business activities from which it earns revenue or incur
expenses (including inter-segment transactions),
b. Whose activities are regularly reviewed by the chief operating decision
maker for resource allocation and assessing performance,
c. For which discrete financial information is available.
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Not operating segments
- head office
- research and development department
Unless they undertakes business activities, such as treasury functions
by the head office and earns interest.
A discontinued operation can be classified as an operating segment if
continues to engage in business activities and meet the other criteria to
be classified as an operating segment
5. Reportable Segments
• Identifying the chief operating decision maker(CODM).
• Identifying business activities. Some may not earn revenue or incur
expenses.
• Determining whether discrete financial information is available for these
business activities, and
• Determining whether that information is regularly reviewed by the chief
operating decision maker.
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Operating components or an aggregation of operating segments
are reportable segments. There are four key issues to consider in
identifying operating segments. They are:
7. Operating Segment
•That engages in business activities from which it may
earn revenues & incur expenses
•Whose operating results are regularly reviewed by
the entity’s chief operating decision maker for
resources allocation & performance evaluation
•For which discrete financial information is available
8. Reportable Segment
Operating segments are aggregated if they have:
•Similar long term financial performance
•Similar economic characteristics
•The segment are similar in each of the following:
• Nature of products & services
• Nature of the production process
• Type/class of customer
• Method used to distribute products/services
• Nature of regulatory environment
9. Thresholds for Reportable Segment
An operating segment is a reportable segment, if it meets
one of the following:
• Its reported revenue including both external & internal, is
10% or more of the combined revenue of all operating
segments
• The absolute amount of its reported profit/loss is 10% or
more of the greater, in absolute amount, of
i. The combined reported profit of all operating
segments that did not report a loss
ii. The combined reported loss of all operating segments
that reported a loss
• The assets are 10% or more of the combined assets of all
operating segments
10. Thresholds for Reportable Segment
After the 10% rules, also consider:
•Total external revenue attributable to those
reportable segments is at least 75% of the entity’s
total revenue
*If total external revenue is <75%, additional operating
segments shall be identified as reportable segments, even if
they do not meet the threshold, until at least 75% of the entity’s
revenue is included in reportable segments.
11. Comparative Segment
•A segment identified as a reportable segment in the
immediately preceding period should continue to be
a reportable segment for the current period although
it does not satisfy the 10% for the current period
•If a segment is identified as a reportable segment in
the current period, prior period segment data
presented for comparative purposes should be
restated
12. Segment Information Disclosure
General information:
•Factors used to identify the reportable segment (e.g.
product type, geographical location)
•Types of products & services from which each
reportable segment derives its revenues
13. Segment Information Disclosure
Information about P&L:
•Revenue from external customers
•Revenue from inter-segment transactions
•Interest revenue
•Interest expense
•Depreciation and amortisation
•Material items of income and expenses
•Share of profit/loss of associates and joint ventures
accounted for by the equity method
•Income tax expense
•Material non-cash items other than depreciation and
amortisation
14. Segment Information Disclosure
Information about asset & liability:
•Amount of investment in associates & joint venture
accounted for using equity method
•Amount of capital expenditure
15. Segment Information Disclosure
Minimum disclosure:
• Basis of accounting between reportable segment
• Nature of differences between measurement of
reportable segments’ P&L & the entity’s P&L
• Nature of differences between measurement of
reportable segments’ asset/liability & the entity’s
asset/liability
• Nature of changes from prior period in the measurement
methods used to determine reported segment P&L & the
effect
• Nature & effect of any asymmetrical allocations to
reportable segment
16. Other Disclosure
Info about product & service:
• Report the revenue from external customers for each product
& service
Info about geographical areas:
• Revenue from external customers
- From home country
- From foreign country
• Capital asset
- located in home country
- located in foreign country
Info about major customers
• If revenue obtain from a single external customer is ≥ 10%
17.
18.
19.
20.
21. Reconciliation Statement
• Segment revenue
• Segment profit or loss before tax and discontinued operations, or profit
after tax if income tax is allocated to the various segments.
• Segment assets
• Segment liabilities (if reported)
• Other material amounts
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Lazar
The entity has to provide reconciliations of the totals disclosed in the
segment report to the amounts reported in the financial statements:
22. Limitations of Segmental Reporting
Problem areas in segmental reporting Segmental reports can
provide useful information, but they also have important
limitations.
1.MFRS 8 states that segments should reflect the way in which
the entity is managed. This means that segments are defined
by the directors. Arguably, this provides too much flexibility. It
also means that segmental information is only useful for
comparing the performance of the same entity over time, not
for comparing the performance of different entities.
2.Common costs may be allocated to different segments on
whatever basis the directors believe is reasonable. This can
lead to arbitrary allocation of these costs.
23. Limitations of Segmental Reporting
3. A segment's operating results can be distorted by
trading with other segments on non-commercial
terms.
4. These limitations have applied to most systems of
segmental reporting, regardless of the accounting
standard being applied. MFRS 8 requires
disclosure of some information about the way in
which common costs are allocated and the basis
of accounting for inter-segment transactions.
24. Example 1
ABC Bhd is a large training & media entity with an important
international component. The directors’ reporting is very
detailed & information is collected about the different
divisions across the entity. The following information is
available for the year ended 31 Dec 2009:
Which of the divisions are reportable segment?
Division Revenue Profit Assets
Exam based learning 360 21 176
E-learning 60 3 13
Corporate training 125 5 84
Print media 232 27 102
Online publishing 124 2 31
Cable TV 73 5 39
974 63 445
25. Answer
Division 10% Revenue
(97.4)
10% Profit
(6.3)
10% Assets
(44.5)
Exam based learning Y Y Y
E-learning
Corporate training Y Y
Print media Y Y Y
Online publishing Y
Cable TV
