Our ‘Insights into IFRS 8’ series considers some key implementation issues and includes interpretational guidance in certain problematic areas. We also include several examples illustrating the Standard’s requirements. This article sets out the requirements of identifying reportable segments, which is closely linked to aggregating operating segments.
The balance between presenting enough information to users of the financial statements and presenting too much information so that the overall picture and usefulness of what is being disclosed is not masked by detail is a fine one. For some large or complex entities, the number of operating segments identified when applying IFRS 8 ‘Operating Segments’ may be excessive and the benefit of disclosing segmental information for each separate segment may be insufficient to justify the cost.
IFRS 8 generally does not require disclosure of each separate operating segment. Instead, quantitative thresholds are set to select the more significant segments requiring separate disclosure. Some aggregation is permitted where segments have similar economic characteristics or fall below the quantitative thresholds. However, IFRS 8 also sets a minimum level for separate segment disclosure, based on external revenue levels.
The process for determining reportable segments can be confusing. The IASB has included a flow chart in the Implementation Guidance to IFRS 8 to assist. This is reproduced at the back of this article. The process may be summarised as follows:
- Identify operating segments, as discussed in our article ‘Insights into IFRS 8 – Identifying operating segments’.
- (Optional step): Determine whether any operating segments meet all the aggregation criteria in IFRS 8 (see our article ‘Insights into IFRS 8 – Aggregation of operating segments’) and if so aggregate them.
- Review the identified operating segments and aggregated groups of operating segments to see if they meet the quantitative thresholds and so need to be treated as reportable segments (see full article 'Reportable segments').
- (Optional step – may be done here or after testing whether the external revenues of reportable segments represent 75% or more of the entity’s external revenue): For the remainder, determine whether any of the identified operating segments or aggregated groups of operating segments meet a majority of the aggregation criteria in IFRS 8. If they do, aggregate them and treat as reportable segments if they meet the quantitative thresholds (see our article ‘Insights into IFRS 8 – Aggregation of operating segments’).
- Test whether the external revenues of reportable segments identified so far represent 75% or more of the entity’s external revenue. If not, additional reportable segments must be identified (either individual segments or aggregations of segments identified), until the total of reportable segments reaches the 75% point (see page 3, full article 'Reportable segments')
- Aggregate the remaining segments not identified as reportable segments into an ‘all other segments’ category (see flowchart on page 7, full article 'Reportable segments').
How we can help
We hope you find the information in this article helpful in giving you some insight into IFRS 8. If you would like to discuss any of the points raised, please speak to your usual Grant Thornton contact or your local member firm.
