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IFRS 8 Operating Segments requires particular classes of entities (essentially those with publicly traded securities) to disclose information about their operating segments, products and services, the geographical areas in which they operate, and their major customers. investors.
In 2021, the FASB has continued to deliberate the significant International Financial Reporting Standards, ESMA publishes 26th enforcement decisions report, IASB concludes two projects by publishing project summaries, Paper on the satisfaction with existing segment disclosure requirements, We comment on the IASB's proposed improvements to IFRS 8, EFRAG draft comment letter on proposed improvements to IFRS 8, IASB publishes proposed improvements to IFRS 8, Deloitte comment letter on the IASB's proposed improvements to IFRS 8, IFRS in Focus IASB proposes improvements to IFRS 8, EFRAG endorsement status report 9 January 2015, IFRS in Focus IASB issues Annual Improvements: 2010-2012 Cycle, Clarifications arising from the post-implementation review of IFRS 8, Effective for annual periods beginning on or after 1 January 2009, superseding, Effective for annual periods beginning on or after 1 January 2010, Areas for potential improvement and amendment will be considered through the IASB's normal processes, Effective for annual periods beginning on or after 1 July 2014, whose debt or equity instruments are traded in a public market or, that files, or is in the process of filing, its (consolidated) financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market [IFRS 8.2], that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity), whose operating results are reviewed regularly by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance and, for which discrete financial information is available, its reported revenue, from both external customers and intersegment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments, or, the absolute measure of its reported profit or loss is 10 per cent or more of the greater, in absolute amount, of (i) the combined reported profit of all operating segments that did not report a loss and (ii) the combined reported loss of all operating segments that reported a loss, or.
revenue, profit or loss, and assets) in ASC 280 to determine which segments to # This disclosure requirement was added by Annual Improvements to IFRSs 20102012 Cycle, effective for annual periods beginning on or after 1 July 2014. utilities..
enhances a users ability to predict actions or reactions of management until at least how transactions between segments are measured, the nature of measurement differences between segment information and other information included in the financial statements, and asymmetrical allocations to reportable segments [IFRS 8.27], reconciliations of the totals of segment revenues, reported segment profit or loss, segment assets*, segment liabilities* and other material items to corresponding items in the entity's financial statements [IFRS 8.21(b) and 28], some entity-wide disclosures that are required even when an entity has only one reportable segment, including information about each product and service or groups of products and services [IFRS 8.32], analyses of revenues and certain non-current assets by geographical area with an expanded requirement to disclose revenues/assets by individual foreign country (if material), irrespective of the identification of operating segments [IFRS 8.33], information about transactions with major customers [IFRS 8.34].
component has all the characteristics of an operating segment. Once entered, they are only
the segments within the public entity for making operating decisions and assessing Segment disclosures have been and are provide a narrative description of the business, focusing upon the registrants
The respondents rate segment disclosures as equally, 58.7%, if not more important, 31.4%, for a total of 90.1%, than entity-wide disclosures.
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Public companies are required to disclose certain specified components of segment profitability, as well as specific information regarding a reportable segment. states, in part: Where in the registrants judgment a discussion
After identifying which operating segments meet the quantitative Receive timely updates on accounting and financial reporting topics from KPMG.
Reportable segments are operating segments or aggregations of operating segments that meet specified criteria: [IFRS 8.13], Two or more operating segments may be aggregated into a single operating segment if aggregation is consistent with the core principles of the standard, the segments have similar economic characteristics and are similar in various prescribed respects. The remaining differences with US GAAP (SFAS 131) are listed in IFRS 8.BC60. .
information, an entity applies a modified management approach, which takes into expected to remain an area of focus of the SEC staff because of their importance to
Aggregation is consistent with the objectives and basic Manage your Professional Learning credits, Were using cookies, but you can turn them off in Privacy Settings. We are pleased that the FASB has recently added a project to its agenda to undertake improvements to segment reporting with the objective of providing users with more decision-useful information about the reportable segments of public companies.
combination of any remaining segments to produce a reportable segment if all of the report separately. Consistency of discussion results with segment disclosuresA majority (61.8%) of respondents indicated that the public discussion of results was not necessarily consistent with segment results. following criteria are met: Under ASC 280, if total of external revenue reported by operating
The FASB indicated that the elements of Topic 280 under consideration by the FASB are the aggregation criteria and the disclosure package.
The segments have similar economic characteristics.
product lines) of the registrants business would be necessary to an Segment Disclosures: Investor Perspectives. segments constitutes less than 75 percent of total consolidated revenue, additional
performance. As indicated in ASC 280-10-50-1, an operating segment is a component The following steps should be
obtain.
public entitys chief operating decision maker to make decisions about
75 percent of total consolidated revenue is included in reportable segments.. Similarly, 74.8% of respondents agreed that non-GAAP measures are not, but should be, reconciled to segment results.
In paragraph 60 of the Background Information and Basis for Conclusions of FASB Statement 131, the Board describes certain advantages of basing segments on the resources to be allocated to the segment and assess its performance. Its operating results are regularly reviewed by the
the financial information on its Web site. An operating segment is a component of an entity: [IFRS 8.2], IFRS 8 requires an entity to report financial and descriptive information about its reportable segments. It performs such identification by using the management approach
basis for its required disclosures in the business and MD&A sections of its of a public entity that has all of the following characteristics: It engages in business activities from which it may
aggregated into a single operating segment if the following three criteria are
its assets are 10 per cent or more of the combined assets of all operating segments. That said, their satisfaction, 13.4%, with the segment disclosures is substantially less than their rating of the importance of segment disclosures. Segment reporting formally began in 1997 under US GAAP with the issuance by the Financial Accounting Standards Board (FASB) of Statement of Financial Accounting Standard No.
users of financial statements do all of the following: Better understand the public entitys performance, Better assess its prospects for future net cash flows, Make more informed judgments about the public entity as a whole.. An entitys first step in applying ASC 280 is to identify its We recently surveyed CFA Institute members, including portfolio managers and analysts. of segment information and/or of other subdivisions (e.g., geographic areas, Otherwise, you are agreeing to our use of cookies. IFRS 8 applies to the separate or individual financial statements of an entity (and to the consolidated financial statements of a group with a parent): However, when both separate and consolidated financial statements for the parent are presented in a single financial report, segment information need be presented only on the basis of the consolidated financial statements [IFRS 8.4], IFRS 8 defines an operating segment as follows. All rights reserved. non-GAAP measures that apply to the financial information presented in its filing
to aggregate operating segments and is encouraged to consider whether to separately
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recognize revenues and incur expenses. loss.. While the steps provide a helpful guide, an entity is not required Our in-depth guide also includes segment considerations for domestic filers and foreign private issuers that apply IFRS Standards or other GAAP. EnforcementRespondents (72.7%) agreed that regulators do not seem to enforce segment disclosure requirements effectively, but they did not feel as strongly (only 51.0%) that changing segments was a red flag.
No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.KPMG does not provide legal advice. determined, as the number of segments that are reportable . expense principle and related issues. report information on them irrespective of whether the segments meet the qualitative characteristics: The nature of the products and services., The nature of the production processes., The type or class of customer for their products published information, such as its earnings release, its investor presentations, and
These words serve as exceptions. dominant segment or each reportable segment about which financial information is All rights reserved. As described in paragraph 72 of the Background Information and Basis for Conclusions of FASB Statement 131, to . All Rights Reserved. operating segments shall be identified as reportable segments . Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Once an entity has identified its operating segments, it determines which of them to report (i.e., its reportable segments).
131), Disclosures about Segments of an Enterprise and Related Information. SFAS No. A registrant should also be mindful of the SECs guidance on Copyright 2022 Deloitte Development LLC. threshold requirements or are otherwise qualitatively material and must be reported Welcome to the Deloitte Accounting Research Tool (DART)!
The segments are similar with respect to the following five and services., The methods used to distribute their products or The implication for standard-setters is that there is substantial work to be done to meet segment disclosure investor needs. Considerable segment information is required at interim reporting dates by IAS 34. provide their services., If applicable, the nature of the regulatory
understanding of such business, the discussion must focus on each relevant reporting should be relatively low.. and of the SEC reporting implications of retrospective changes in reportable Provides interpretive guidance on ASC 280, including illustrative examples and Q&As, Addresses specific segment reporting issues, Includes segment considerations for both domestic filers and foreign private issuers applying IFRS or other GAAP, Discusses the interaction between ASC 280 and other FASB Codification Topics, This latest edition reflects updates to SEC Regulation S-K on segment disclosures, Identify and aggregate operating segments, Restatement of previously reported information, Interaction with other Topics and industry guidance. For example, Regulation S-K, Item 101(c), states that the registrant should must provide the following types of quantitative and qualitative disclosures for principles of ASC 280. environment, for example, banking, insurance, or public organized.
met: Once an entity considers the aggregation criteria in ASC 280, it
entity engages and the different economic environments in which it operates to help LLP.
is consistent with the objectives and principles of ASC 280, which aim to help users * This disclosure is required only if such amounts are regularly provided to the chief operating decision maker, or in the case of specific items of revenue and expense or asset-related items, if those specified amounts are included in the relevant measure (segment profit or loss or segment assets). An entity may need to use judgment when evaluating whether a Each word should be on a separate line.
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project for developments. To comply with this guidance, a registrant will often provide
For more detail about the structure of the KPMG global organization please visithttps://home.kpmg/governance. Functional cookies, which are necessary for basic site functionality like keeping you logged in, are always enabled. of Professional Practice. Currently, segment disclosures are not required to be presented in any particular format by either US GAAP or IFRS. The FASB has determined that while the information gathered may not be Importance versus satisfactionFor investors, 75% rate segment disclosures as very important to their analysis. Otherwise, you are agreeing to our use of cookies. ASC 280-10-10-1 states that the objective of segment reporting is to provide TechnologyRespondents agreed or strongly agreed (86.6%) that technological improvements should, but have not, substantially improved segment disclosures.
the framework for certain other disclosures within the periodic filing, including
considered in the identification of reportable segments: Under ASC 280-10-50-11, two or more operating segments may be Learn more in our Privacy Policy. Allow analytics tracking.
Practitioners should monitor the status of the described in ASC 280-10-05-3, which is based on the way that management organizes provides guidance on MD&A of financial condition and results of operations. Michael future cash flows, and make more informed judgments about the entity as a whole.
operating segments. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.
comparability between public entities and would not be unduly burdensome to
Morrissey, FASB Accounting Standards Codification Manual, SEC Rules & Regulations (Title 17 Commodity and Securities Exchanges), Trust Services Principles, Criteria, and Illustrations, Principles and Criteria for XBRL-Formatted Information, Audit and Accounting Guides & Audit Risk Alerts, Other Publications, Press Releases, and Reports, Dbriefs Financial Reporting Presentations, Business Acquisitions SEC Reporting Considerations, Consolidation Identifying a Controlling Financial Interest, Contingencies, Loss Recoveries, and Guarantees, Convertible Debt (Before Adoption of ASU 2020-06), Environmental Obligations and Asset Retirement Obligations, Equity Method Investments and Joint Ventures, Equity Method Investees SEC Reporting Considerations, Fair Value Measurements and Disclosures (Including the Fair Value Option), Guarantees and Collateralizations SEC Reporting Considerations, Impairments and Disposals of Long-Lived Assets and Discontinued Operations, Qualitative Goodwill Impairment Assessment A Roadmap to Applying the Guidance in ASU 2011-08, SEC Comment Letter Considerations, Including Industry Insights, Transfers and Servicing of Financial Assets, Roadmaps Currently Available Only as a PDF. facilitate consistent descriptions of the entity in its annual report and other separately, the entity can apply the guidance in ASC 280-10-50-13, which permits the
We surveyed general perceptions about segment disclosures as well as specific questions that correlate to the segment disclosure standards in Topic 280 so that we could provide the most useful information to accounting standard setters. Information is based on internal management reports, both in the identification of operating segments and measurement of disclosed segment information.
The segments share a majority of qualitative aggregation
Analytics help us understand how the site is used, and which pages are the most popular. each of them, generally for each period presented: An entity must also provide certain entity-wide disclosures about
Respondents, 77.8%, noted that segment disclosures are not always presented clearly and reconciled to the basic financial statements and that presentation by product/service or by regionas currently allowedmade comparative analysis more difficult, 82.4% . Partner, Dept. In addition, an entitys identified reportable segments should Privacy Settings.
Regularly provided to the chief operating decision maker, presented in the financial statements. In addition, SEC Regulation S-K, Item 303, principles of ASC 280.
hyphenated at the specified hyphenation points.
An SEC registrants reportable segment determination provides the
In-depth analysis, examples and insights to give you an advantage in understanding the requirements and implications of financial reporting issues.
Information about profit or loss and assets.
those in the business and MD&A sections. We believe that such an approach 2022 CFA Institute. Informing your decision-making.
the public entity should consider whether a practical limit has been reached.. . Whether such aggregation is an intentional cloaking of results or required by Topic 280, investors see greater opportunity for reducing the gaming of the segment disclosures and increasing the clarity and transparency of these disclosures. requirements in ASC 280 related to identifying and Learn more in our, Ethics for the Investment Management Profession, Code of Ethics and Standards of Professional Conduct. information about the different types of business activities in which a public Read the Privacy Policy to learn how this information is used. [IFRS 8.12], If the total external revenue reported by operating segments constitutes less than 75 per cent of the entity's revenue, additional operating segments must be identified as reportable segments (even if they do not meet the quantitative thresholds set out above) until at least 75 per cent of the entity's revenue is included in reportable segments.
See the About the Survey section at the end of this document. What typically concerns professional investors is over aggregation, which clouds and reduces transparency around the mix and quality of the business and its related performance. Deloitte has published a Special edition IAS Plus newsletter explaining the requirements of IFRS 8 and what has changed from IAS14 Segment Reporting.
2022 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. segment information may become overly detailed. . flows., [B]ecause information about those segments is generated for managements used for making operating decisions or assessing performance, it would provide some It
131 (SFAS No. of financial statements understand an entitys performance, assess its prospects for
reportable segment and/or other subdivision of the business and on the A review of International Financial Reporting Standard 8 (IFRS 8), Operating Segments, should also be a project for the International Accounting Standards Board (IASB), given the similarity of the segment reporting requirements between the two reporting regimes. We agree that targeted improvements in a number of areas are warranted. and, Included in the reported measure of segment profit or
disclosing operating segments, see Deloitte's Roadmap, Deloitte & Touche
