Operating Segments in accordance with IFRS 8 requires specific classes of organizations (typically those that are with securities, which are traded publicly) to reveal information pertaining to their operating segments, services and products, geographical locations of their operations as well as their important customers. This information is ideally provided on the basis of the reports of internal management, both in case of identifying operating segments and measuring of revealed segment information.
An operating segment as per IFRS 8 is basically a component of an organization:
- which indulges in business related activities from where it may earn profits as well as incur expenditures (including expenses and revenues that are related to the transactions made with other components of the same organization)
- whose operation related results are regularly reviewed by the company’s chief operating officer for making decisions regarding resources that needs to be allocated to the operating segment and for assessing its performance and
- whose discrete finance related information is readily available
The IFRS 8 demands that an organization should report descriptive and financial information regarding its segments that are reportable. Thus, reportable segments are aggregations or operating segments that match certain criteria that typically includes:
- The revenue that is reported, from intersegment selling or transfers and external clients, is ten percent or over 10% of the combined revenue, external and internal, of the entire operating segments or
- The complete measure of the company’s loss or profit that is reported, is ten percent or more than that, in absolute amount of (a) the combined profit of the entire operating segments that are reported and which did not register a loss as well as (b) the combined loss of the entire operating segments that are reported and which registered a loss or
- If the company’s assets are ten percent or more than that when the combined assets of the entire operating segments are taken into consideration
According to IFRS 8, if the full external revenue amount that has been reported by the operating segments is lesser than seventy five percent of the company’s revenue, more reporting segments should be identified in the form of reportable segments (even when they fail to match the quantitative criteria listed above) till the time seventy five percent of the company’s revenue is incorporated in the reportable segments.
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