Guidance on implementingIFRS 8 Operating Segments

This guidance accompanies, but is not part of, IFRS 8.

Introduction

IG1

This implementation guidance provides examples that illustrate the disclosures required by IFRS 8 and a diagram to assist in identifying reportable segments. The formats in the illustrations are not requirements. The Board encourages a format that provides the information in the most understandable manner in the specific circumstances. The following illustrations are for a single hypothetical entity referred to as Diversified Company.

Descriptive information about an entity’s reportable segments

IG2

The following illustrates the disclosure of descriptive information about an entity’s reportable segments (the paragraph references are to the relevant requirements in the IFRS).

Description of the types of products and services from which each reportable segment derives its revenues (paragraph 22(b))

Diversified Company has five reportable segments: car parts, motor vessels, software, electronics and finance. The car parts segment produces replacement parts for sale to car parts retailers. The motor vessels segment produces small motor vessels to serve the offshore oil industry and similar businesses. The software segment produces application software for sale to computer manufacturers and retailers. The electronics segment produces integrated circuits and related products for sale to computer manufacturers. The finance segment is responsible for portions of the company’s financial operations including financing customer purchases of products from other segments and property lending operations.

Measurement of operating segment profit or loss, assets and liabilities (paragraph 27)

The accounting policy information about operating segments is the same as that described as part of the material accounting policy information, except that pension expense for each operating segment is recognised and measured on the basis of cash payments to the pension plan. Diversified Company evaluates performance on the basis of profit or loss from operations before tax expense not including non-recurring gains and losses and foreign exchange gains and losses.
Diversified Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties, ie at current market prices.

Factors that management used to identify the entity’s reportable segments (paragraph 22(a))

Diversified Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Most of the businesses were acquired as individual units, and the management at the time of the acquisition was retained.

Information about reportable segment profit or loss, assets and liabilities

IG3

The following table illustrates a suggested format for disclosing information about reportable segment profit or loss, assets and liabilities (paragraphs 23 and 24). The same type of information is required for each year for which a statement of comprehensive income is presented. Diversified Company does not allocate tax expense (tax income) or non‑recurring gains and losses to reportable segments. In addition, not all reportable segments have material non‑cash items other than depreciation and amortisation in profit or loss. The amounts in this illustration, denominated as ‘currency units (CU)’, are assumed to be the amounts in reports used by the chief operating decision maker.

    Car parts Motor vessels Software Electronics Finance All other Totals
    CU CU CU CU CU CU CU
Revenues from external customers 3,000 5,000 9,500 12,000 5,000 1,000(a) 35,500
Intersegment revenues – – 3,000 1,500 – – 4,500
Interest revenue 450 800 1,000 1,500 – – 3,750
Interest expense 350 600 700 1,100 – – 2,750
Net interest revenue(b) – – – – 1,000 – 1,000
Depreciation and amortisation 200 100 50 1,500 1,100 – 2,950
Reportable segment profit 200 70 900 2,300 500 100 4,070
Other material non-cash items:              
  Impairment of assets – 200 – – – – 200
Reportable segment assets 2,000 5,000 3,000 12,000 57,000 2,000 81,000
Expenditures for reportable segment non-current assets 300 700 500 800 600 – 2,900
Reportable segment liabilities 1,050 3,000 1,800 8,000 30,000 – 43,850
(a)

Revenues from segments below the quantitative thresholds are attributable to four operating segments of Diversified Company. Those segments include a small property business, an electronics equipment rental business, a software consulting practice and a warehouse leasing operation. None of those segments has ever met any of the quantitative thresholds for determining reportable segments.

(b)

The finance segment derives a majority of its revenue from interest. Management primarily relies on net interest revenue, not the gross revenue and expense amounts, in managing that segment. Therefore, as permitted by paragraph 23, only the net amount is disclosed.

Reconciliations of reportable segment revenues, profit or loss, assets and liabilities

IG4

The following illustrate reconciliations of reportable segment revenues, profit or loss, assets and liabilities to the entity’s corresponding amounts (paragraph 28(a)⁠–⁠(d)). Reconciliations also are required to be shown for every other material item of information disclosed (paragraph 28(e)). The entity’s financial statements are assumed not to include discontinued operations. As discussed in paragraph IG2, the entity recognises and measures pension expense of its reportable segments on the basis of cash payments to the pension plan, and it does not allocate certain items to its reportable segments. 

Revenues CU
Total revenues for reportable segments 39,000
Other revenues 1,000
Elimination of intersegment revenues (4,500)
Entity’s revenues 35,500
Profit or loss CU
Total profit or loss for reportable segments 3,970
Other profit or loss 100
Elimination of intersegment profits (500)
Unallocated amounts:  
  Litigation settlement received 500
  Other corporate expenses (750)
Adjustment to pension expense in consolidation (250)
Income before income tax expense 3,070
Assets CU
Total assets for reportable segments 79,000
Other assets 2,000
Elimination of receivable from corporate headquarters (1,000)
Other unallocated amounts 1,500
Entity’s assets 81,500
Liabilities CU
Total liabilities for reportable segments 43,850
Unallocated defined benefit pension liabilities 25,000
Entity’s liabilities 68,850
Other material items Reportable segment totals Adjustments Entity totals
  CU CU CU
Interest revenue 3,750 75 3,825
Interest expense 2,750 (50) 2,700
Net interest revenue (finance segment only) 1,000 – 1,000
Expenditures for assets 2,900 1,000 3,900
Depreciation and amortisation 2,950 – 2,950
Impairment of assets 200 – 200

The reconciling item to adjust expenditures for assets is the amount incurred for the corporate headquarters building, which is not included in segment information. None of the other adjustments are material.

Elimination of intersegment amounts [member] Example Member IFRS 8.28 Example 871100
Unallocated amounts [member] Example Member IFRS 8.28 Example 871100

Geographical information

IG5

The following illustrates the geographical information required by paragraph 33. (Because Diversified Company’s reportable segments are based on differences in products and services, no additional disclosures of revenue information about products and services are required (paragraph 32).)

Geographical information Revenues(a) Non-current assets
  CU CU
United States 19,000 11,000
Canada 4,200 –
China 3,400 6,500
Japan 2,900 3,500
Other countries 6,000 3,000
Total 35,500 24,000
(a)

Revenues are attributed to countries on the basis of the customer’s location.

Information about major customers

IG6

The following illustrates the information about major customers required by paragraph 34. Neither the identity of the customer nor the amount of revenues for each operating segment is required.

Revenues from one customer of Diversified Company’s software and electronics segments represent approximately CU5,000 of the Company’s total revenues.

Diagram to assist in identifying reportable segments

IG7

The following diagram illustrates how to apply the main provisions for identifying reportable segments as defined in the IFRS. The diagram is a visual supplement to the IFRS. It should not be interpreted as altering or adding to any requirements of the IFRS nor should it be regarded as a substitute for the requirements.

Diagram for identifying reportable segments

Appendices

AppendixAmendments to other Implementation Guidance

This appendix contains amendments to guidance on other IFRSs that are necessary in order to ensure consistency with IFRS 8. In the amended paragraphs, new text is underlined and deleted text is struck through.

* * * * *

The amendments contained in this appendix when IFRS 8 was issued in 2006 have been incorporated into the text of the Guidance on Implementing IFRS 4 and the illustrative examples accompanying IAS 36, both as issued at 30 November 2006.