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IFRS Financial performance requiring disclosure in respect of primary segment format

IFRS Financial performance requiring disclosure in respect of primary segment format

IFRS Financial performance requiring disclosure in respect of primary segment format: IFRS 8 provides a framework on which to base the reported disclosures.

  1. Entities are required to provide general information on such matters as how the reportable segments are identified and the types of products or services from which each reportable segment derives its revenue.
  2. Entities are required to report a measure of profit or loss and total assets for each reportable segment. Both should be based on the information provided to the chief operating decision maker. If the chief operating decision maker is regularly provided with information on liabilities for its operating segments then these liabilities should also be reported on a segment basis.

IFRS 8 specifies disclosures that are needed regarding profit or loss and assets where the amounts are included in the measure of profit or loss and total assets:

  • Revenues – internal and external.
  • Interest revenues and interest expense. These must not be netted off unless the majority of a segment’s revenues are from interest and the chief operating decision maker assesses the performance of the segment based on net interest revenue.
  • Depreciation and amortization.
  • Material items of income and expense disclosed separately.
  • Share of profit after tax of, and carrying value of investment in, entities accounted for under the equity method.
  • Material non-cash items other than depreciation and amortization.
  • The amount of additions to non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets and rights arising under insurance contracts.

The measurement basis for each item separately reported should be the one used in the information provided to the chief operating decision maker. The internal reporting system may use more than one measure of an operating segment’s profit or loss, or assets or liabilities. In such circumstances the measure used in the segment report should be the one that management believes is most consistent with those used to measure the corresponding amounts in the entity’s financial statements.

IFRS Financial performance requiring disclosure in respect of primary segment format: Entities are required to provide a number of reconciliations:

  • the total of the reportable segments’ revenues to the entity’s revenue
  • the total of the reportable segments’ profit or loss to the entity’s profit or loss
  • the total of the reportable segments’ assets to the entity’s assets
  • where separately identified, the total of the reportable segments’ liabilities to the entity’s liabilities and
  • the total of the reportable segments’ amounts for every other material item disclosed to the corresponding amount for the entity.

IFRS Financial performance requiring disclosure in respect of primary segment format: Entity-wide disclosures

Unless otherwise provided in the segment report IFRS 8 requires entities to provide information about its revenue on a geographical and ‘class of business’ basis. Entities also need to provide information on non-current assets on a geographical basis, but not on a ‘class of business’ basis.

If revenues from single external customer amount to 10% or more of the total revenue of the entity then the entity needs to disclose that fact plus:

  • the total revenue from each customer (although the name is not needed) and
  • the segment or segment reporting the revenues.

The ‘entity-wide disclosures’ are needed even where the entity has only a single operating segment, and therefore does not effectively segment report.

IFRS Financial performance requiring disclosure in respect of primary segment format

IFRS 8 Operating Segments : In ED 8, the Board proposed extending the scope of the IFRS to all entities that have public accountability rather than just entities whose securities are publicly traded. The Board noted that it was premature to adopt the proposed definition of public accountability that is being considered in a separate Board project on small and medium-sized entities (SMEs). However, the Board decided that the scope of the standard should be extended to include entities that hold assets in a fiduciary capacity for a broad group of outsiders. The Board concluded that the SMEs project is the most appropriate context in which to decide whether to extend the scope of the requirements on segment reporting to other entities.

Some respondents to ED 8 commented that the scope of the IFRS should not be extended until the Board has reached a conclusion on the definitions of ‘fiduciary capacity’ and ‘public accountability’ in the SMEs project. They argued that the terms needed clarification and definition.

IFRS 8 Operating Segments

IFRS 8 Operating Segments : The Board accepted these concerns and decided that the IFRS should not apply to entities that hold assets in a fiduciary capacity. However, the Board decided that publicly accountable entities should be within the scope of the IFRS, and that a future amendment of the scope of the IFRS should be proposed to include publicly accountable entities once the definition has been properly developed in the SMEs project. The proposed amendment will therefore be exposed at the same time as the exposure draft of the proposed IFRS for SMEs.

In ED 8 the Board proposed that if an entity not required to apply the IFRS chooses to disclose segment information in financial statements that comply with IFRSs, that entity would be required to comply with the requirements of the IFRS. Respondents commented that this was unnecessarily restrictive. For example, they observed that requiring full compliance with the IFRS would prevent an entity outside its scope from voluntarily disclosing sales information for segments without also disclosing segment profit or loss. The Board concluded that an entity should be able to provide segment information on a voluntary basis without triggering the need to comply fully with the IFRS, so long as the disclosure is not referred to as segment information.

IFRS Financial performance requiring disclosure in respect of primary segment format

IFRS 8 Operating Segments : A respondent to ED 8 asked for clarification on whether the scope of the proposed IFRS included the consolidated financial statements of a group whose
parent has no listed financial instruments, but includes a listed minority interest1 or a subsidiary with listed debt. The Board decided that such consolidated financial statements should not be included in the scope and that the scope should be clarified accordingly. The Board also noted that the same clarification should be made to the scope of IAS 33 Earnings per Share.

The IFRS requires the entity to explain the measurements of segment profit or loss and segment assets and liabilities and to provide reconciliations of the total segment amounts to the amounts recognised in the entity’s financial statements. The Board believes that such reconciliations will enable users to understand and judge the basis on which the segment amounts were determined. The Board also noted that to define the measurement of such amounts would be a departure from the requirements of SFAS 131 that would involve additional time and cost for entities and would be inconsistent with the management perspective on segment information.

IFRS Financial performance requiring disclosure in respect of primary segment format

IFRS 8 Operating Segments : The Board considered an approach whereby any material operating segment would be required to be disclosed separately. However, the Board was concerned that there might be uncertainty about the meaning of materiality in relation to disclosure. Furthermore, such a requirement would be a significant change from the wording of SFAS 131. Thus, the Board was concerned that the change would be from an easily understandable and familiar set of words that converges with SFAS 131 to a potentially confusing principle. Accordingly, the Board decided to retain the quantitative thresholds.

IFRS Financial performance requiring disclosure in respect of primary segment format

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