Improvements to IFRS8 on operating segments

Keywords: Mazars, Thailand, IFRS 8, IASB, Operating Segments

3 May 2017

The chief operating decision maker

The text clarifies that the chief operating decision maker is the function that makes operating decisions and decisions about allocating resources to, and assessing the performance of, the operating segments of an entity. As it is a function, it may be carried out by an individual or a group, even if that group includes non-executive members. The text also requires an entity to disclose the title and description of the role of the chief operating decision maker in the notes.

Criteria for the aggregation of operating segments

The amendment contains clarifications regarding the similar economic characteristics required by segments in order to qualify for aggregation under paragraph IFRS 8.12. Such segments often exhibit similar long-term financial performance across a range of measures including:

▪ revenue growth,

▪ return on assets, and

▪ average gross margins.

Disclosures on operating segments

The first of these disclosures consists of the requirement to reconcile the segments presented in the financial statements and those presented elsewhere in the annual reporting package, requiring, where differences exist, an explanation of these differences in the notes to the financial statements.

The text then proposes to clarify that an entity may provide more disclosures than those reviewed by the chief operating decision maker if that would help users of financial statements to better evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates. In the same spirit, a fuller explanation is required regarding the reconciliation of segment information and the financial statements. The aspects in question include the accounting policies applied where these are other than IFRSs, amounts not allocated to the reportable segments, and the elimination of intersegment amounts, such as revenue and intersegment receivables.

Finally, if the composition of an entity’s segments changes, the text proposes that the first interim financial statements produced after this change should restate the segment information for all the interim periods in the year in which the change occurred, but also for all the comparative periods presented, unless the information is not available and the cost to develop it would be excessive. 

The consultation is open until 31 July 2017, and may be found on the IFRS website.