IFRS 8

International Financial Reporting Standard 8

Operating Segments

IFRS 8 was issued in November 2006 and its effective date is 1 January 2009. This version includes
amendments resulting from IFRSs issued up to 31 December 2010 with an effective date no later than
1 January 2011.

IAS 14 Segment Reporting was issued by the International Accounting Standards Committee
in August 1997. It replaced IAS 14 Reporting Financial Information by Segment (issued in
August 1981 and reformatted in 1994).

In April 2001 the International Accounting Standards Board (IASB) resolved that all
Standards and Interpretations issued under previous Constitutions continued to be
applicable unless and until they were amended or withdrawn.

IAS 14 was subsequently amended by the following IFRSs:

• IAS 2 Inventories (as revised in December 2003)

• IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

(issued December 2003)

• IAS 16 Property, Plant and Equipment (as revised in December 2003)

• IFRS 3 Business Combinations (issued March 2004)

• IFRS 5 Non-current Assets Held for Sale and Discontinued Operations (issued March 2004)

• IFRS 7 Financial Instruments: Disclosures (issued August 2005)

• IAS 1 Presentation of Financial Statements (as revised in September 2007).*

In November 2006 the IASB issued IFRS 8 Operating Segments, which replaced IAS 14.

IFRS 8 has been amended by the following IFRSs:

• IAS 1 Presentation of Financial Statements (as revised in September 2007)*

• Improvements to IFRSs (issued April 2009)†

• IAS 24 Related Party Disclosures (issued November 2009).§

* effective date 1 January 2009

† effective date 1 January 2010
§ effective date 1 January 2011

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CONTENTS
paragraphs

INTRODUCTION IN1–IN18
INTERNATIONAL FINANCIAL REPORTING STANDARD 8
OPERATING SEGMENTS
CORE PRINCIPLE 1
SCOPE 2–4
OPERATING SEGMENTS 5–10
REPORTABLE SEGMENTS 11–19
Aggregation criteria 12
Quantitative thresholds 13–19
DISCLOSURE 20–24
General information 22
Information about profit or loss, assets and liabilities 23–24
MEASUREMENT 25–30
Reconciliations 28
Restatement of previously reported information 29–30
ENTITY-WIDE DISCLOSURES 31–34
Information about products and services 32
Information about geographical areas 33
Information about major customers 34
TRANSITION AND EFFECTIVE DATE 35–36B
WITHDRAWAL OF IAS 14 37
APPENDICES
A Defined term
B Amendments to other IFRSs
APPROVAL BY THE BOARD OF IFRS 8 ISSUED IN NOVEMBER 2006
BASIS FOR CONCLUSIONS
DISSENTING OPINIONS
APPENDICES TO THE BASIS FOR CONCLUSIONS
A Background information and basis for conclusions of the US Financial Accounting
Standards Board on SFAS 131
B Amendments to the Basis for Conclusions on other IFRSs
IMPLEMENTATION GUIDANCE
APPENDIX
Amendments to other Implementation Guidance

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International Financial Reporting Standard 8 Operating Segments (IFRS 8) is set out in

paragraphs 1–37 and Appendices A and B. All the paragraphs have equal authority.
Paragraphs in bold type state the main principles. Definitions of terms are given in the
Glossary for International Financial Reporting Standards. IFRS 8 should be read in the
context of its core principle and the Basis for Conclusions, the Preface to International
Financial Reporting Standards and the Conceptual Framework for Financial Reporting. IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting
and applying accounting policies in the absence of explicit guidance.

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Introduction

Reasons for issuing the IFRS

IN1 International Financial Reporting Standard 8 Operating Segments sets out

requirements for disclosure of information about an entity’s operating segments
and also about the entity’s products and services, the geographical areas in which
it operates, and its major customers.

IN2 Achieving convergence of accounting standards around the world is one of the
prime objectives of the International Accounting Standards Board. In pursuit of
that objective, the Board and the Financial Accounting Standards Board (FASB) in
the United States have undertaken a joint short-term project with the objective of
reducing differences between International Financial Reporting Standards (IFRSs)
and US generally accepted accounting principles (US GAAP) that are capable of
resolution in a relatively short time and can be addressed outside major projects.
One aspect of that project involves the two boards considering each other’s recent
standards with a view to adopting high quality financial reporting solutions.
The IFRS arises from the IASB’s consideration of FASB Statement No.131 Disclosures
about Segments of an Enterprise and Related Information (SFAS 131) issued in 1997,
compared with IAS 14 Segment Reporting, which was issued in substantially its
present form by the IASB’s predecessor body, the International Accounting
Standards Committee, in 1997.

IN3 The IFRS achieves convergence with the requirements of SFAS 131, except for
minor differences listed in paragraph BC60 of the Basis for Conclusions.
The wording of the IFRS is the same as that of SFAS 131 except for changes
necessary to make the terminology consistent with that in other IFRSs.

Main features of the IFRS

IN4 The IFRS specifies how an entity should report information about its operating
segments in annual financial statements and, as a consequential amendment to
IAS 34 Interim Financial Reporting, requires an entity to report selected information
about its operating segments in interim financial reports. It also sets out
requirements for related disclosures about products and services, geographical
areas and major customers.

IN5 The IFRS requires an entity to report financial and descriptive information about
its reportable segments. Reportable segments are operating segments or
aggregations of operating segments that meet specified criteria. Operating
segments are components of an entity about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on the
same basis as is used internally for evaluating operating segment performance
and deciding how to allocate resources to operating segments.

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IN6 The IFRS requires an entity to report a measure of operating segment profit or loss
and of segment assets. It also requires an entity to report a measure of segment
liabilities and particular income and expense items if such measures are regularly
provided to the chief operating decision maker. It requires reconciliations of total
reportable segment revenues, total profit or loss, total assets, liabilities and other
amounts disclosed for reportable segments to corresponding amounts in the
entity’s financial statements.

IN7 The IFRS requires an entity to report information about the revenues derived
from its products or services (or groups of similar products and services), about
the countries in which it earns revenues and holds assets, and about major
customers, regardless of whether that information is used by management in
making operating decisions. However, the IFRS does not require an entity to
report information that is not prepared for internal use if the necessary
information is not available and the cost to develop it would be excessive.

IN8 The IFRS also requires an entity to give descriptive information about the way the
operating segments were determined, the products and services provided by the
segments, differences between the measurements used in reporting segment
information and those used in the entity’s financial statements, and changes in
the measurement of segment amounts from period to period.

IN9 An entity shall apply this IFRS for annual periods beginning on or after 1 January
2009. Earlier application is permitted. If an entity applies this IFRS for an earlier
period, it shall disclose that fact.

Changes from previous requirements

IN10 The IFRS replaces IAS 14 Segment Reporting. The main changes from IAS 14 are
described below.

Identification of segments
IN11 The requirements of the IFRS are based on the information about the components
of the entity that management uses to make decisions about operating matters.
The IFRS requires identification of operating segments on the basis of internal
reports that are regularly reviewed by the entity’s chief operating decision maker
in order to allocate resources to the segment and assess its performance. IAS 14
required identification of two sets of segments—one based on related products
and services, and the other on geographical areas. IAS 14 regarded one set as
primary segments and the other as secondary segments.

IN12 A component of an entity that sells primarily or exclusively to other operating

segments of the entity is included in the IFRS’s definition of an operating segment
if the entity is managed that way. IAS 14 limited reportable segments to those
that earn a majority of their revenue from sales to external customers and
therefore did not require the different stages of vertically integrated operations
to be identified as separate segments.

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Measurement of segment information

IN13 The IFRS requires the amount reported for each operating segment item to be the
measure reported to the chief operating decision maker for the purposes of
allocating resources to the segment and assessing its performance. IAS 14
required segment information to be prepared in conformity with the accounting
policies adopted for preparing and presenting the financial statements of the
consolidated group or entity.

IN14 IAS 14 defined segment revenue, segment expense, segment result, segment
assets and segment liabilities. The IFRS does not define these terms, but requires
an explanation of how segment profit or loss, segment assets and segment
liabilities are measured for each reportable segment.

Disclosure
IN15 The IFRS requires an entity to disclose the following information:

(a) factors used to identify the entity’s operating segments, including the basis
of organisation (for example, whether management organises the entity
around differences in products and services, geographical areas, regulatory
environments, or a combination of factors and whether segments have
been aggregated), and

(b) types of products and services from which each reportable segment derives
its revenues.

IN16 IAS 14 required the entity to disclose specified items of information about its
primary segments. The IFRS requires an entity to disclose specified amounts
about each reportable segment, if the specified amounts are included in the
measure of segment profit or loss and are reviewed by or otherwise regularly
provided to the chief operating decision maker.

IN17 The IFRS requires an entity to report interest revenue separately from interest
expense for each reportable segment unless a majority of the segment’s revenues
are from interest and the chief operating decision maker relies primarily on net
interest revenue to assess the performance of the segment and to make decisions
about resources to be allocated to the segment. IAS 14 did not require disclosure
of interest income and expense.

IN18 The IFRS requires an entity, including an entity with a single reportable segment,
to disclose information for the entity as a whole about its products and services,
geographical areas, and major customers. This requirement applies, regardless of
the entity’s organisation, if the information is not included as part of the
disclosures about segments. IAS 14 required the disclosure of secondary segment
information for either industry or geographical segments, to supplement the
information given for the primary segments.

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International Financial Reporting Standard 8

Operating Segments

Core principle

1 An entity shall disclose information to enable users of its financial statements to

evaluate the nature and financial effects of the business activities in which it
engages and the economic environments in which it operates.

Scope

2 This IFRS shall apply to:

(a) the separate or individual financial statements of an entity:

(i) whose debt or equity instruments are traded in a public market

(a domestic or foreign stock exchange or an over-the-counter market,
including local and regional markets), or

(ii) that files, or is in the process of filing, its financial statements with a
securities commission or other regulatory organisation for the
purpose of issuing any class of instruments in a public market; and

(b) the consolidated financial statements of a group with a parent:

(i) whose debt or equity instruments are traded in a public market

(a domestic or foreign stock exchange or an over-the-counter market,
including local and regional markets), or

(ii) that files, or is in the process of filing, the consolidated financial

statements with a securities commission or other regulatory
organisation for the purpose of issuing any class of instruments in a
public market.

3 If an entity that is not required to apply this IFRS chooses to disclose information
about segments that does not comply with this IFRS, it shall not describe the
information as segment information.

4 If a financial report contains both the consolidated financial statements of a

parent that is within the scope of this IFRS as well as the parent’s separate
financial statements, segment information is required only in the consolidated
financial statements.

Operating segments

5 An operating segment is a component of an entity:

(a) 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),

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(b) whose operating results are regularly reviewed by the entity’s chief
operating decision maker to make decisions about resources to be allocated
to the segment and assess its performance, and

(c) for which discrete financial information is available.

An operating segment may engage in business activities for which it has yet to
earn revenues, for example, start-up operations may be operating segments
before earning revenues.

6 Not every part of an entity is necessarily an operating segment or part of an

operating segment. For example, a corporate headquarters or some functional
departments may not earn revenues or may earn revenues that are only
incidental to the activities of the entity and would not be operating segments.
For the purposes of this IFRS, an entity’s post-employment benefit plans are not
operating segments.

7 The term ‘chief operating decision maker’ identifies a function, not necessarily a
manager with a specific title. That function is to allocate resources to and assess
the performance of the operating segments of an entity. Often the chief operating
decision maker of an entity is its chief executive officer or chief operating officer
but, for example, it may be a group of executive directors or others.

8 For many entities, the three characteristics of operating segments described in

paragraph 5 clearly identify its operating segments. However, an entity may
produce reports in which its business activities are presented in a variety of ways.
If the chief operating decision maker uses more than one set of segment
information, other factors may identify a single set of components as constituting
an entity’s operating segments, including the nature of the business activities of
each component, the existence of managers responsible for them, and
information presented to the board of directors.

9 Generally, an operating segment has a segment manager who is directly

accountable to and maintains regular contact with the chief operating decision
maker to discuss operating activities, financial results, forecasts, or plans for the
segment. The term ‘segment manager’ identifies a function, not necessarily a
manager with a specific title. The chief operating decision maker also may be the
segment manager for some operating segments. A single manager may be the
segment manager for more than one operating segment. If the characteristics in
paragraph 5 apply to more than one set of components of an organisation but
there is only one set for which segment managers are held responsible, that set of
components constitutes the operating segments.

10 The characteristics in paragraph 5 may apply to two or more overlapping sets of

components for which managers are held responsible. That structure is
sometimes referred to as a matrix form of organisation. For example, in some
entities, some managers are responsible for different product and service lines
worldwide, whereas other managers are responsible for specific geographical
areas. The chief operating decision maker regularly reviews the operating results
of both sets of components, and financial information is available for both.
In that situation, the entity shall determine which set of components constitutes
the operating segments by reference to the core principle.

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Reportable segments

11 An entity shall report separately information about each operating segment that:

(a) has been identified in accordance with paragraphs 5–10 or results from
aggregating two or more of those segments in accordance with
paragraph 12, and

(b) exceeds the quantitative thresholds in paragraph 13.

Paragraphs 14–19 specify other situations in which separate information about

an operating segment shall be reported.

Aggregation criteria
12 Operating segments often exhibit similar long-term financial performance if they
have similar economic characteristics. For example, similar long-term average
gross margins for two operating segments would be expected if their economic
characteristics were similar. Two or more operating segments may be aggregated
into a single operating segment if aggregation is consistent with the core
principle of this IFRS, the segments have similar economic characteristics, and
the segments are similar in each of the following respects:

(a) the nature of the products and services;

(b) the nature of the production processes;

(c) the type or class of customer for their products and services;

(d) the methods used to distribute their products or provide their services; and

(e) if applicable, the nature of the regulatory environment, for example,

banking, insurance or public utilities.

Quantitative thresholds
13 An entity shall report separately information about an operating segment that
meets any of the following quantitative thresholds:

(a) Its reported revenue, including both sales to external customers and
intersegment sales or transfers, is 10 per cent or more of the combined
revenue, internal and external, of all operating segments.

(b) The absolute amount 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.

(c) Its assets are 10 per cent or more of the combined assets of all operating
segments.

Operating segments that do not meet any of the quantitative thresholds may be
considered reportable, and separately disclosed, if management believes that
information about the segment would be useful to users of the financial
statements.

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14 An entity may combine information about operating segments that do not meet
the quantitative thresholds with information about other operating segments
that do not meet the quantitative thresholds to produce a reportable segment
only if the operating segments have similar economic characteristics and share a
majority of the aggregation criteria listed in paragraph 12.

15 If the total external revenue reported by operating segments constitutes less than
75 per cent of the entity’s revenue, additional operating segments shall be
identified as reportable segments (even if they do not meet the criteria in
paragraph 13) until at least 75 per cent of the entity’s revenue is included in
reportable segments.

16 Information about other business activities and operating segments that are not
reportable shall be combined and disclosed in an ‘all other segments’ category
separately from other reconciling items in the reconciliations required by
paragraph 28. The sources of the revenue included in the ‘all other segments’
category shall be described.

17 If management judges that an operating segment identified as a reportable

segment in the immediately preceding period is of continuing significance,
information about that segment shall continue to be reported separately in the
current period even if it no longer meets the criteria for reportability in
paragraph 13.

18 If an operating segment is identified as a reportable segment in the current

period in accordance with the quantitative thresholds, segment data for a prior
period presented for comparative purposes shall be restated to reflect the newly
reportable segment as a separate segment, even if that segment did not satisfy the
criteria for reportability in paragraph 13 in the prior period, unless the necessary
information is not available and the cost to develop it would be excessive.

19 There may be a practical limit to the number of reportable segments that an

entity separately discloses beyond which segment information may become too
detailed. Although no precise limit has been determined, as the number of
segments that are reportable in accordance with paragraphs 13–18 increases
above ten, the entity should consider whether a practical limit has been reached.

Disclosure

20 An entity shall disclose information to enable users of its financial statements to

evaluate the nature and financial effects of the business activities in which it
engages and the economic environments in which it operates.

21 To give effect to the principle in paragraph 20, an entity shall disclose the
following for each period for which a statement of comprehensive income is
presented:

(a) general information as described in paragraph 22;

(b) information about reported segment profit or loss, including specified

revenues and expenses included in reported segment profit or loss,
segment assets, segment liabilities and the basis of measurement, as
described in paragraphs 23–27; and

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(c) reconciliations of the totals of segment revenues, reported segment profit

or loss, segment assets, segment liabilities and other material segment
items to corresponding entity amounts as described in paragraph 28.

Reconciliations of the amounts in the statement of financial position for

reportable segments to the amounts in the entity’s statement of financial
position are required for each date at which a statement of financial position
is presented. Information for prior periods shall be restated as described in
paragraphs 29 and 30.

General information
22 An entity shall disclose the following general information:

(a) factors used to identify the entity’s reportable segments, including the
basis of organisation (for example, whether management has chosen to
organise the entity around differences in products and services,
geographical areas, regulatory environments, or a combination of factors
and whether operating segments have been aggregated), and

(b) types of products and services from which each reportable segment derives
its revenues.

Information about profit or loss, assets and liabilities

23 An entity shall report a measure of profit or loss for each reportable segment.
An entity shall report a measure of total assets and liabilities for each reportable
segment if such amounts are regularly provided to the chief operating decision
maker. An entity shall also disclose the following about each reportable segment
if the specified amounts are included in the measure of segment profit or loss
reviewed by the chief operating decision maker, or are otherwise regularly
provided to the chief operating decision maker, even if not included in that
measure of segment profit or loss:

(a) revenues from external customers;

(b) revenues from transactions with other operating segments of the same
entity;

(c) interest revenue;

(d) interest expense;

(e) depreciation and amortisation;

(f) material items of income and expense disclosed in accordance with

paragraph 97 of IAS 1 Presentation of Financial Statements (as revised in 2007);

(g) the entity’s interest in the profit or loss of associates and joint ventures
accounted for by the equity method;

(h) income tax expense or income; and

(i) material non-cash items other than depreciation and amortisation.

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An entity shall report interest revenue separately from interest expense for each
reportable segment unless a majority of the segment’s revenues are from interest
and the chief operating decision maker relies primarily on net interest revenue to
assess the performance of the segment and make decisions about resources to be
allocated to the segment. In that situation, an entity may report that segment’s
interest revenue net of its interest expense and disclose that it has done so.

24 An entity shall disclose the following about each reportable segment if the
specified amounts are included in the measure of segment assets reviewed by the
chief operating decision maker or are otherwise regularly provided to the chief
operating decision maker, even if not included in the measure of segment assets:

(a) the amount of investment in associates and joint ventures accounted for by
the equity method, and

(b) the amounts of additions to non-current assets* other than financial

instruments, deferred tax assets, post-employment benefit assets (see IAS 19
Employee Benefits paragraphs 54–58) and rights arising under insurance
contracts.

Measurement

25 The amount of each segment item reported shall be the measure reported to the
chief operating decision maker for the purposes of making decisions about
allocating resources to the segment and assessing its performance. Adjustments
and eliminations made in preparing an entity’s financial statements and
allocations of revenues, expenses, and gains or losses shall be included in
determining reported segment profit or loss only if they are included in the
measure of the segment’s profit or loss that is used by the chief operating decision
maker. Similarly, only those assets and liabilities that are included in the
measures of the segment’s assets and segment’s liabilities that are used by the
chief operating decision maker shall be reported for that segment. If amounts are
allocated to reported segment profit or loss, assets or liabilities, those amounts
shall be allocated on a reasonable basis.

26 If the chief operating decision maker uses only one measure of an operating
segment’s profit or loss, the segment’s assets or the segment’s liabilities in
assessing segment performance and deciding how to allocate resources, segment
profit or loss, assets and liabilities shall be reported at those measures. If the chief
operating decision maker uses more than one measure of an operating segment’s
profit or loss, the segment’s assets or the segment’s liabilities, the reported
measures shall be those that management believes are determined in accordance
with the measurement principles most consistent with those used in measuring
the corresponding amounts in the entity’s financial statements.

27 An entity shall provide an explanation of the measurements of segment profit or

loss, segment assets and segment liabilities for each reportable segment. At a
minimum, an entity shall disclose the following:

* For assets classified according to a liquidity presentation, non-current assets are assets that
include amounts expected to be recovered more than twelve months after the reporting period.

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(a) the basis of accounting for any transactions between reportable segments.

(b) the nature of any differences between the measurements of the reportable
segments’ profits or losses and the entity’s profit or loss before income tax
expense or income and discontinued operations (if not apparent from the
reconciliations described in paragraph 28). Those differences could include
accounting policies and policies for allocation of centrally incurred costs
that are necessary for an understanding of the reported segment
information.

(c) the nature of any differences between the measurements of the reportable
segments’ assets and the entity’s assets (if not apparent from the
reconciliations described in paragraph 28). Those differences could include
accounting policies and policies for allocation of jointly used assets that are
necessary for an understanding of the reported segment information.

(d) the nature of any differences between the measurements of the reportable
segments’ liabilities and the entity’s liabilities (if not apparent from the
reconciliations described in paragraph 28). Those differences could include
accounting policies and policies for allocation of jointly utilised liabilities
that are necessary for an understanding of the reported segment
information.

(e) the nature of any changes from prior periods in the measurement methods
used to determine reported segment profit or loss and the effect, if any, of
those changes on the measure of segment profit or loss.

(f) the nature and effect of any asymmetrical allocations to reportable

segments. For example, an entity might allocate depreciation expense to a
segment without allocating the related depreciable assets to that segment.

Reconciliations
28 An entity shall provide reconciliations of all of the following:

(a) the total of the reportable segments’ revenues to the entity’s revenue.

(b) the total of the reportable segments’ measures of profit or loss to the
entity’s profit or loss before tax expense (tax income) and discontinued
operations. However, if an entity allocates to reportable segments items
such as tax expense (tax income), the entity may reconcile the total of the
segments’ measures of profit or loss to the entity’s profit or loss after those
items.

(c) the total of the reportable segments’ assets to the entity’s assets.

(d) the total of the reportable segments’ liabilities to the entity’s liabilities if
segment liabilities are reported in accordance with paragraph 23.

(e) the total of the reportable segments’ amounts for every other material item
of information disclosed to the corresponding amount for the entity.

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All material reconciling items shall be separately identified and described.

For example, the amount of each material adjustment needed to reconcile
reportable segment profit or loss to the entity’s profit or loss arising from
different accounting policies shall be separately identified and described.

Restatement of previously reported information

29 If an entity changes the structure of its internal organisation in a manner that
causes the composition of its reportable segments to change, the corresponding
information for earlier periods, including interim periods, shall be restated
unless the information is not available and the cost to develop it would be
excessive. The determination of whether the information is not available and the
cost to develop it would be excessive shall be made for each individual item of
disclosure. Following a change in the composition of its reportable segments, an
entity shall disclose whether it has restated the corresponding items of segment
information for earlier periods.

30 If an entity has changed the structure of its internal organisation in a manner

that causes the composition of its reportable segments to change and if segment
information for earlier periods, including interim periods, is not restated to
reflect the change, the entity shall disclose in the year in which the change occurs
segment information for the current period on both the old basis and the new
basis of segmentation, unless the necessary information is not available and the
cost to develop it would be excessive.

Entity-wide disclosures

31 Paragraphs 32–34 apply to all entities subject to this IFRS including those entities
that have a single reportable segment. Some entities’ business activities are not
organised on the basis of differences in related products and services or
differences in geographical areas of operations. Such an entity’s reportable
segments may report revenues from a broad range of essentially different
products and services, or more than one of its reportable segments may provide
essentially the same products and services. Similarly, an entity’s reportable
segments may hold assets in different geographical areas and report revenues
from customers in different geographical areas, or more than one of its reportable
segments may operate in the same geographical area. Information required
by paragraphs 32–34 shall be provided only if it is not provided as part of the
reportable segment information required by this IFRS.

Information about products and services

32 An entity shall report the revenues from external customers for each product and
service, or each group of similar products and services, unless the necessary
information is not available and the cost to develop it would be excessive, in
which case that fact shall be disclosed. The amounts of revenues reported shall
be based on the financial information used to produce the entity’s financial
statements.

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Information about geographical areas

33 An entity shall report the following geographical information, unless the
necessary information is not available and the cost to develop it would be
excessive:
(a) revenues from external customers (i) attributed to the entity’s country of
domicile and (ii) attributed to all foreign countries in total from which the
entity derives revenues. If revenues from external customers attributed to
an individual foreign country are material, those revenues shall be
disclosed separately. An entity shall disclose the basis for attributing
revenues from external customers to individual countries.
(b) non-current assets* other than financial instruments, deferred tax assets,
post-employment benefit assets, and rights arising under insurance
contracts (i) located in the entity’s country of domicile and (ii) located in all
foreign countries in total in which the entity holds assets. If assets in an
individual foreign country are material, those assets shall be disclosed
separately.
The amounts reported shall be based on the financial information that is used to
produce the entity’s financial statements. If the necessary information is not
available and the cost to develop it would be excessive, that fact shall be disclosed.
An entity may provide, in addition to the information required by this paragraph,
subtotals of geographical information about groups of countries.

Information about major customers

34 An entity shall provide information about the extent of its reliance on its major
customers. If revenues from transactions with a single external customer amount
to 10 per cent or more of an entity’s revenues, the entity shall disclose that fact,
the total amount of revenues from each such customer, and the identity of the
segment or segments reporting the revenues. The entity need not disclose the
identity of a major customer or the amount of revenues that each segment
reports from that customer. For the purposes of this IFRS, a group of entities
known to a reporting entity to be under common control shall be considered a
single customer. However, judgement is required to assess whether a
government (including government agencies and similar bodies whether local,
national or international) and entities known to the reporting entity to be under
the control of that government are considered a single customer. In assessing
this, the reporting entity shall consider the extent of economic integration
between those entities.

Transition and effective date

35 An entity shall apply this IFRS in its annual financial statements for periods
beginning on or after 1 January 2009. Earlier application is permitted. If an entity
applies this IFRS in its financial statements for a period before 1 January 2009, it
shall disclose that fact.

* For assets classified according to a liquidity presentation, non-current assets are assets that
include amounts expected to be recovered more than twelve months after the reporting period.

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35A Paragraph 23 was amended by Improvements to IFRSs issued in April 2009.

An entity shall apply that amendment for annual periods beginning on or after
1 January 2010. Earlier application is permitted. If an entity applies the
amendment for an earlier period it shall disclose that fact.

36 Segment information for prior years that is reported as comparative information

for the initial year of application (including application of the amendment to
paragraph 23 made in April 2009) shall be restated to conform to the
requirements of this IFRS, unless the necessary information is not available and
the cost to develop it would be excessive.

36A IAS 1 (as revised in 2007) amended the terminology used throughout IFRSs.
In addition it amended paragraph 23(f). An entity shall apply those amendments
for annual periods beginning on or after 1 January 2009. If an entity applies IAS 1
(revised 2007) for an earlier period, the amendments shall be applied for that
earlier period.

36B IAS 24 Related Party Disclosures (as revised in 2009) amended paragraph 34 for
annual periods beginning on or after 1 January 2011. If an entity applies IAS 24
(revised 2009) for an earlier period, it shall apply the amendment to paragraph 34
for that earlier period.

Withdrawal of IAS 14

37 This IFRS supersedes IAS 14 Segment Reporting.

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Appendix A
Defined term
This appendix is an integral part of the IFRS.

operating segment An operating segment is a component of an entity:

(a) 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),

(b) whose operating results are regularly reviewed by the

entity’s chief operating decision maker to make decisions
about resources to be allocated to the segment and assess
its performance, and

(c) for which discrete financial information is available.

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Appendix B
Amendments to other IFRSs
The amendments in this appendix shall be applied for annual periods beginning on or after
1 January 2009. If an entity applies this IFRS for an earlier period, these amendments shall be applied
for that earlier period. In the amended paragraphs, new text is underlined and deleted text is struck
through.

*****

The amendments contained in this appendix when this IFRS was issued in 2006 have been incorporated
into the text of the relevant IFRSs in this volume.

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Approval by the Board of IFRS 8 issued in November 2006

International Financial Reporting Standard 8 Operating Segments was approved for issue by
eleven of the thirteen members of the International Accounting Standards Board.
Messrs Gélard and Leisenring dissented. Their dissenting opinions are set out after the
Basis for Conclusions.

Sir David Tweedie Chairman

Thomas E Jones Vice-Chairman
Mary E Barth
Hans-Georg Bruns
Anthony T Cope
Jan Engström
Robert P Garnett
Gilbert Gélard
James J Leisenring
Warren J McGregor
Patricia L O’Malley
John T Smith
Tatsumi Yamada

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CONTENTS
paragraphs

BASIS FOR CONCLUSIONS ON

IFRS 8 OPERATING SEGMENTS
INTRODUCTION BC1–BC8
Differences between IAS 14 and SFAS 131 BC4–BC5
Academic research findings BC6
Meetings with users BC7–BC8
ADOPTION OF MANAGEMENT APPROACH BC9–BC17
SCOPE OF THE STANDARD BC18–BC23
ASPECTS OF THE MANAGEMENT APPROACH BC24–BC47
Specific measurement requirements for some items BC24–BC26
Matrix form of organisations BC27
Quantitative thresholds BC28–BC29
Interaction of aggregation criteria and quantitative thresholds BC30
Inclusion of US guidance BC31–BC33
Information about segment assets BC34–BC35A
Information about segment liabilities BC36–BC38
Level of reconciliations BC39–BC42
Lack of a competitive harm exemption BC43–BC45
Adoption of the term ‘impracticable’ BC46–BC47
ENTITY-WIDE DISCLOSURES BC48–BC58
Geographical information BC49–BC50
Exemption from entity-wide disclosures BC51–BC53
Country of domicile BC54–BC55
Subtotal for tangible non-current assets BC56–BC57
Information about major customers BC58
INTERIM FINANCIAL INFORMATION BC59
DIFFERENCES FROM SFAS 131 BC60
TRANSITIONAL PROVISIONS BC61–BC62

DISSENTING OPINIONS ON IFRS 8

APPENDICES
A Background information and basis for conclusions of the US Financial Accounting
Standards Board on SFAS 131
B Amendments to Basis for Conclusions on other IFRSs

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Basis for Conclusions on

IFRS 8 Operating Segments
This Basis for Conclusions and its appendices accompany, but are not part of, IFRS 8.

Introduction

BC1 This Basis for Conclusions summarises the International Accounting Standards
Board’s considerations in reaching the conclusions in IFRS 8 Operating Segments.
Individual Board members gave greater weight to some factors than to others.

BC2 In September 2002 the Board decided to add a short-term convergence project to
its active agenda. The project is being conducted jointly with the United States
standard-setter, the Financial Accounting Standards Board (FASB). The objective
of the project is to reduce differences between IFRSs and US generally accepted
accounting principles (US GAAP) that are capable of resolution in a relatively
short time and can be addressed outside major projects.

BC3 As part of the project, the Board identified differences between IAS 14 Segment
Reporting and the US standard SFAS 131 Disclosures about Segments of an Enterprise and
Related Information, reviewed academic research findings on segment reporting, in
particular relating to the implementation of SFAS 131, and had meetings with
users of financial statements.

Differences between IAS 14 and SFAS 131

BC4 The requirements of SFAS 131 are based on the way that management regards an
entity, focusing on information about the components of the business that
management uses to make decisions about operating matters. In contrast, IAS 14
requires the disaggregation of the entity’s financial statements into segments
based on related products and services, and on geographical areas.

BC5 The requirements of SFAS 14 Financial Reporting for Segments of a Business Enterprise,
the predecessor to SFAS 131, were similar to those of IAS 14. In particular, both
standards required the accounting policies underlying the disaggregated
information to be the same as those underlying the entity information, since
segment information was regarded as a disaggregation of the entity information.
The approach to segment disclosures in SFAS 14 was criticised for not providing
information about segments based on the structure of an entity’s internal
organisation that could enhance a user’s ability to predict actions or reactions of
management that could significantly affect the entity’s future cash flow
prospects.

Academic research findings

BC6 Most of the academic research findings on segment reporting indicated that
application of SFAS 131 resulted in more useful information than its predecessor,
SFAS 14. According to the research, the management approach of SFAS 131:

(a) increased the number of reported segments and provided more

information;

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(b) enabled users to see an entity through the eyes of management;

(c) enabled an entity to provide timely segment information for external

interim reporting with relatively low incremental cost;

(d) enhanced consistency with the management discussion and analysis or

other annual report disclosures; and

(e) provided various measures of segment performance.

Meetings with users

BC7 The Board discussed segment reporting at several meetings with users of financial
statements. Most of the users supported the management approach of SFAS 131
for the reasons mentioned in the previous paragraph. In particular, they
supported an approach that would enable more segment information to be
provided in interim financial reports.

BC8 Consequently the Board decided to adopt the US approach and published its
proposals as an exposure draft in ED 8 Operating Segments in January 2006.
The deadline for comments was 19 May 2006. The Board received 182 comment
letters. After reviewing the responses, the Board issued IFRS 8 in November 2006.

Adoption of management approach

BC9 In the Basis for Conclusions on ED 8, the Board noted that the primary benefits of
adopting the management approach in SFAS 131 are that:

(a) entities will report segments that correspond to internal management

reports;

(b) entities will report segment information that will be more consistent with
other parts of their annual reports;

(c) some entities will report more segments; and

(d) entities will report more segment information in interim financial reports.

In addition, the Board noted that the proposed IFRS would reduce the cost of
providing disaggregated information for many entities because it uses segment
information that is generated for management’s use.

BC10 Most respondents to the Exposure Draft supported the adoption of the
management approach. They considered the management approach appropriate,
and superior to the approach of IAS 14. These respondents observed that the
management approach for segment reporting allows users to review an entity’s
operations from the same perspective as management. They noted that although
the IAS 14 approach would enhance comparability by requiring entities to report
segment information that is consistent with IFRSs, the disclosures will not
necessarily correspond to segment information that is reported to management
and is used for making decisions.

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BC11 Other respondents disagreed with the management approach. They argued that
convergence should instead be achieved by changing SFAS 131 to IAS 14. In their
view the latter approach is superior because it provides comparability of
information across entities by defining measures of segment revenue, segment
expense, segment result, segment assets and segment liabilities.

BC12 Yet other respondents agreed with the management approach for the
identification of segment assets, but disagreed with the management approach
for the measurement of the various segment disclosures. In particular, they
doubted whether the publication of internally reported amounts would generate
significant benefit for investors if those amounts differ from IFRS amounts.

BC13 The Board noted that if IFRS amounts could be prepared reliably and on a timely
basis for segments identified using the management approach, that approach
would provide the most useful information. However, the Board observed that
IFRS amounts for segments cannot always be prepared on a sufficiently timely
basis for interim reporting.

BC14 The Board also noted the requirements in the IFRS for an explanation of the
measurements of segment profit or loss and segment assets and for
reconciliations of the segment amounts to the amounts recognised in the entity’s
financial statements. The Board was satisfied that users would be able to
understand and judge appropriately the basis on which the segment amounts
were determined.

BC15 The Board concluded that the advantages of the management approach, in
particular the ability of entities to prepare segment information on a sufficiently
timely basis for inclusion in interim financial reports, outweighed any
disadvantages arising from the potential for segments to be reported in
accordance with non-IFRS accounting policies.

BC16 Given the Board’s support for the principles of the management approach
required by SFAS 131 and the objectives of the short-term convergence project,
the Board decided that the simplest and most complete way to achieve
convergence would be to use the text of SFAS 131 for the IFRS.

BC17 The FASB’s thinking behind the management approach of SFAS 131 is presented
in its Background Information and Basis for Conclusions. Because the Board has
adopted that approach, the FASB’s Background Information and Basis for
Conclusions are reproduced in Appendix A to this Basis for Conclusions. The few
differences from SFAS 131 that the Board has included in the IFRS are noted in
paragraph BC60 below.

Scope of the standard

BC18 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

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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.

BC19 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.

BC20 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.

BC21 A number of respondents to ED 8 suggested that the scope exemption of

paragraph 6 of IAS 14 should be included in the IFRS. This paragraph provided an
exemption from segment reporting in the separate financial statements of the
parent when a financial report contains both consolidated financial statements
and the parent’s separate financial statements. The Board agreed that on
practical grounds such an exemption was appropriate.

BC22 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.

BC23 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 interest* 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.

* In January 2008 the IASB issued an amended IAS 27 Consolidated and Separate Financial Statements,
which amended ‘minority interest’ to ‘non-controlling interests’.

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Aspects of the management approach

Specific measurement requirements for some items

BC24 In ED 8, the Board invited comments on whether the proposed IFRS should depart
from the management approach in SFAS 131 by setting measurement
requirements for specified items. Some respondents to ED 8 supported an
approach that would define the measurement of the key terms such as segment
revenues, segment expenses, segment results, segment assets and segment
liabilities in order to enhance comparability between reporting entities. Other
respondents disagreed with any departure from SFAS 131 on the grounds that
defined measurements for specified items would eliminate the major benefits of
the management approach.

BC25 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.

BC26 Therefore, the Board decided not to require defined measures of segment
revenues, segment expenses, segment result, segment assets and segment
liabilities.

Matrix form of organisations

BC27 In ED 8 the Board proposed that when more than one set of segments could be
identified, for example when entities use a matrix form of organisation, the
components based on products and services should be the basis for the operating
segments. Some respondents noted that matrix organisational structures are
commonly used for large complex organisations and that mandating the use of
components based on products and services was inconsistent with the
management approach. The Board agreed with this view. Accordingly, the IFRS
requires the identification of operating segments to be made by reference to the
core principle of the IFRS.

Quantitative thresholds
BC28 In ED 8 the Board proposed quantitative thresholds for identifying reportable
segments. Some respondents argued that such requirements represent adoption
of a rule-based, rather than a principle-based, approach. In addition, some
respondents commented that the inclusion of a 10 per cent threshold could create
a precedent for determining materiality in other areas.

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BC29 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.

Interaction of aggregation criteria and quantitative

thresholds
BC30 One respondent commented that the ranking of the aggregation criteria for
operating segments and the quantitative thresholds for determining reportable
segments was unclear in ED 8. However, the flow chart in paragraph IG7 of the
implementation guidance indicates that the aggregation criteria take precedence
over the quantitative thresholds. The Board also noted that the wording in
SFAS 131 was clear because the paragraph on aggregation refers to aggregation
into a ‘single operating segment’. The quantitative thresholds then determine
which operating segments are reportable segments. The term ‘operating’ has
been inserted in paragraph 12 of the IFRS.

Inclusion of US guidance
BC31 The Board discussed the extent to which the IFRS should address the practical
problems that have arisen from applying SFAS 131 in the US. The Board
considered the FASB Q&A 131 Segment Information: Guidance on Applying Statement 131
and Emerging Issues Task Force (EITF) 04-10 Determining Whether to Aggregate
Operating Segments that do not Meet the Quantitative Threshold.

BC32 EITF 04-10 addresses the issue of whether to aggregate operating segments that do
not meet the quantitative thresholds. It requires quantitative thresholds to be
aggregated only if aggregation is consistent with the objective and core principles
of SFAS 131, the segments have similar economic characteristics, and the
segments share a majority of the aggregation criteria listed in paragraph 17(a)–(e)
of SFAS 131. The Board agreed with the approach adopted in EITF 04-10 and
concluded that the same requirement should be included in the IFRS.

BC33 FASB Q&A 131—Segment Information: Guidance on Applying Statement 131 is an

implementation guide that provides the views of the FASB staff on certain
questions on SFAS 131. Because it was not issued by the FASB itself, the Board
decided not to include this material in the IFRS.

Information about segment assets

BC34 Several respondents noted that, whilst a measure of segment profit or loss can be
expected in every entity’s internal reporting, a measure of segment assets is not
always available, particularly in service industries or other industries with low
utilisation of physical assets. Respondents suggested that in such circumstances
a measure of segment assets should be disclosed only if those amounts were
regularly provided to the chief operating decision maker.

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BC35 The Board noted that requiring disclosure of a measure of segment assets only
when such a measure is reviewed by the chief operating decision maker would
create divergence from SFAS 131. The Board also supported a minimum
disclosure of segment profit or loss and segment assets. The Board therefore
concluded that measures of segment profit or loss and total segment assets
should be disclosed for all segments regardless of whether those measures are
reviewed by the chief operating decision maker.*

BC35A After IFRS 8 was issued, the Board was informed that the reasons originally set out
in paragraph BC35 contradict long-standing interpretations published in the US
for the application of SFAS 131 and create an unintended difference from practice
in the US under SFAS 131. After reconsideration and discussion of the interaction
between the disclosure and measurement requirements in the IFRS (paragraphs
23 and 25), the Board concluded that those reasons no longer reflected its
thinking. Therefore, the Board amended paragraph 23 by Improvements to IFRSs
issued in April 2009 to clarify that a measure of segment assets should be
disclosed only if that amount is regularly provided to the chief operating decision
maker.

Information about segment liabilities

BC36 ED 8 did not propose disclosure of segment liabilities because there is no such
requirement in SFAS 131. The reasons for this are set out in paragraph 96 of the
Basis for Conclusions on SFAS 131, included as Appendix A to this Basis for
Conclusions.

BC37 Some respondents proposed adding a requirement for each entity to disclose
information about segment liabilities, if such information is regularly provided
to the chief operating decision maker. They argued that information about
segment liabilities would be helpful to users. Other respondents favoured
information about net segment assets rather than gross segment assets.

BC38 The Board noted that if segment liabilities are considered in assessing the
performance of, and allocating resources to, the segments of an entity, such
disclosure would be consistent with the management approach. The Board also
noted support for this disclosure from some commentators, particularly users of
financial statements. Accordingly the Board decided to require disclosure of a
measure of segment liabilities if those amounts are regularly provided to the
chief operating decision maker notwithstanding that such a requirement would
create divergence from SFAS 131.

Level of reconciliations
BC39 ED 8 proposed that an entity should provide reconciliations of total reportable
segment amounts for specified items to amounts the entity recognised in
accordance with IFRSs. It did not propose such reconciliations for individual
reportable segments.

* Paragraph BC35 was deleted and paragraph BC35A added as a consequence of Improvements to IFRSs
issued in April 2009.

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BC40 Several respondents expressed concern about the level of detail provided by the
proposed reconciliations. They argued that if the IFRS allows segment
information to be measured on the basis of management information, it should
require reconciliations for individual reportable segments between the segment
amounts and the equivalent amounts measured in accordance with an entity’s
IFRS accounting policies. They added that reconciling only total reportable
segment amounts to amounts presented in the financial statements does not
provide useful information.

BC41 Other respondents supported the proposed reconciliations on the grounds that
more detailed reconciliations would not be more understandable to users and
might be confusing. They believed that the additional costs to reporting entities
were not justified.

BC42 The Board noted that a requirement to provide reconciliations at the individual
reportable segment level would effectively lead to two complete segment
reports—one according to internal measures and the other according to IFRSs.
The Board concluded that the cost of providing two sets of segment information
would outweigh the benefits.

Lack of a competitive harm exemption

BC43 The Board discussed whether entities should be exempt from aspects of the IFRS
if disclosure could cause competitive damage or erosion of shareholder value.
The Board considered an alternative approach whereby entities could be required
to provide reasons for non-disclosure on a ‘comply or explain’ basis.

BC44 The Board concluded that a ‘competitive harm’ exemption would be

inappropriate because it would provide a means for broad non-compliance with
the IFRS. The Board noted that entities would be unlikely to suffer competitive
harm from the required disclosures since most competitors have sources of
detailed information about an entity other than its financial statements.

BC45 Respondents also commented that the requirements of the IFRS would place
small listed companies at a disadvantage to non-listed companies, which are
outside the scope of the IFRS. The Board noted that the relative advantage/
disadvantage of an entity being publicly listed is not a matter for the Board to
consider.

Adoption of the term ‘impracticable’

BC46 Some respondents to ED 8 expressed concern that entities were to be allowed not
to give entity-wide disclosures about products and services and geographical areas
if ‘… the necessary information is not available and the cost to develop it would be
excessive.’ They argued that the test to be applied for non-disclosure should be
that of impracticability as defined in IAS 1 Presentation of Financial Statements.

BC47 The Board noted that the wording in ED 8 ensures convergence with SFAS 131.
Using the term ‘impracticable’ as defined in IAS 1 would change the requirement
and create divergence from SFAS 131. Therefore, the Board decided to retain the
wording of ED 8.

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Entity-wide disclosures

Geographical information
BC48 The IFRS requires an entity to disclose geographical information about
non-current assets, excluding specified items. The Board considered comments
made by some respondents who advocated country-by-country disclosure, others
who requested specific items of geographical information to be disclosed, and
some who expressed reservations with the proposed requirement relating to
disclosure of country of domicile.

BC49 A coalition of over 300 organisations from more than 50 countries known as the
Publish What You Pay campaign requested that the scope of the IFRS should be
extended to require additional disclosure on a country-by-country basis.
The objective of such additional disclosure would be to promote greater transparency
in the management of amounts paid by the oil, gas and mining industries to
governments in developing or transitional countries that are resource-rich.
The view of these campaigners was that publication of specific payments made by
those companies to governments is in the interest of all users of financial
statements.

BC50 Because the IFRS is being developed in a short-term convergence project to

converge with SFAS 131, the Board decided that issues raised by the Publish What
You Pay campaign relating to country-by-country disclosures should not be
addressed in the IFRS. The Board was of the view that such issues merit further
discussion with bodies that are currently engaged in similar issues, for example
the United Nations, International Public Sector Accounting Standards Board,
International Monetary Fund, World Bank, regional development banks and
Financial Stability Forum.

Exemption from entity-wide disclosures

BC51 Several respondents suggested different geographical disclosures from those
proposed in ED 8. For example, some preferred disclosures by geographical areas
rather than by individual country. Others favoured geographical disclosure of
profit or loss as well as non-current assets. Several respondents expressed the
view that disclosure of total assets would be more relevant than non-current
assets. Some took the view that disclosures should be made of both current and
non-current assets. Other respondents recommended that financial assets should
be disclosed as well as non-current assets. Some respondents expressed the view
that disclosure of non-current assets should not be required if those amounts are
not reviewed by the chief operating decision maker.

BC52 In developing ED 8, the Board decided to adopt the requirements in SFAS 131.
Paragraphs 104–107 of the Basis for Conclusions on SFAS 131 provide the
rationale for the geographical disclosures required.

BC53 None of the suggested alternative disclosures was broadly supported by the user
responses. The Board noted that entities that wish to give additional information
are free to do so. The Board therefore concluded that the disclosure requirement
taken from SFAS 131 should not be changed.

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Country of domicile
BC54 Some respondents asserted that disclosures relating to the country of domicile
were inappropriate for many entities. They expressed the view that such
information would be relevant when a large proportion of an entity’s business is
carried out in its country of domicile. They noted, however, that in many
circumstances the country of domicile represents a small proportion of the
entity’s business and in these cases the information required would not be
relevant. In addition, they argued that SFAS 131 had been designed for entities in
the US, for whom the ‘country of domicile’ is in itself a significant geographical
area. These respondents suggested that disclosures should instead be required
about the country of principal activities.

BC55 The IFRS requires disclosures for any country that is individually material.
The Board noted that identifying the country of principal activities may be
difficult and subjective. Accordingly, the Board decided not to require entities to
identify the country of principal activities.

Subtotal for tangible non-current assets

BC56 Paragraphs 14 and 15 of the Basis for Conclusions on ED 8 highlighted a potential
difference from SFAS 131. SFAS 131 requires disclosure of ‘long-lived assets’
excluding intangible assets, whereas ED 8 proposed disclosure of ‘non-current
assets’ including intangible assets. The Board reconsidered whether, in the
interest of convergence, the IFRS should require disclosure of the subtotal of
tangible non-current assets.

BC57 The Board concluded that a separate disclosure of a subtotal of tangible

non-current assets was unnecessary on the grounds that the incremental benefit
does not justify such disclosure. However, the Board noted that entities that wish
to provide that information are free to do so.

Information about major customers

BC58 ED 8 proposed that, in respect of the disclosures about major customers, a group
of entities known to be under common control should be treated as a single
customer. Some respondents noted that this could be difficult when entities are
state-controlled. The Board noted that it was considering proposals to amend
IAS 24 Related Party Disclosures with regard to state-controlled entities, and a
consequential amendment to the IFRS on reporting segments might result from
those proposals. In the meantime, the Board decided to require in the IFRS that a
government (whether national, state, provincial, territorial, local or foreign) and
entities known to the reporting entity to be controlled by that government should
be treated as a single customer. This makes the requirements relating to
government-controlled entities the same as those relating to privately controlled
entities.

Interim financial information

BC59 The Board decided that the changes to IAS 34 Interim Financial Reporting proposed
in ED 8 should be amended to clarify that interim disclosure of information on
segment profit or loss items is required only if the specified amounts are included

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in the measure of segment profit or loss reviewed by the chief operating decision
maker. The Board reached this conclusion because it noted that such disclosure
is consistent with the management approach.

Differences from SFAS 131

BC60 In developing the IFRS, the Board included the following differences from
SFAS 131:

(a) The FASB Guidance on Applying Statement 131 indicates that the FASB staff
believe that ‘long-lived assets’, as that phrase is used in paragraph 38 of
SFAS 131, implies hard assets that cannot be readily removed, which would
appear to exclude intangibles. Non-current assets in the IFRS include
intangibles (see paragraphs BC56 and BC57).

(b) SFAS 131 does not require disclosure of a measure of segment liabilities.
The IFRS requires disclosure of segment liabilities if such a measure is
regularly provided to the chief operating decision maker (see paragraphs
BC36–BC38).

(c) SFAS 131 requires an entity with a matrix form of organisation to

determine operating segments based on products and services. The IFRS
requires such an entity to determine operating segments by reference to
the core principle of the IFRS (see paragraph BC27).

Transitional provisions

BC61 Under its transitional provisions, SFAS 131 was not required to be applied to
interim financial statements in the initial year of its application. However, in the
second year of application, comparative information relating to interim periods
in the initial year of application was required. The Basis for Conclusions on
SFAS 131 explained that the reason for these transitional requirements was that
some of the information that is required to be reported for interim periods is
based on information reported in the most recent annual financial statements.
Interim segment information would not be as meaningful without a full set of
annual segment information to use as a comparison and to provide an
understanding of the basis on which it is provided.

BC62 The Board did not agree with the transitional provision for interim financial
statements in SFAS 131. The Board noted that the IFRS is not effective until 2009,
giving entities adequate time to prepare. Furthermore, the Board was aware that
some entities adopting IFRSs for the first time may wish to present comparative
information in accordance with the IFRS rather than IAS 14.

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Dissenting opinions on IFRS 8

Dissent of Gilbert Gélard and James J Leisenring

DO1 Messrs Gélard and Leisenring dissent from the issue of the IFRS because it does not
require a defined measure of segment profit or loss to be disclosed and does not
require the measure of profit or loss reported to be consistent with the attribution
of assets to reportable segments.

DO2 By not defining segment profit or loss, the IFRS allows the reporting of any
measure of segment profit or loss as long as that measure is reviewed by the chief
operating decision maker. Items of revenue and expense directly attributable to
a segment need not be included in the reported profit or loss of that segment, and
allocation of items not directly attributable to any given segment is not required.
Messrs Gélard and Leisenring believe that the IFRS should require amounts
directly incurred by or directly attributable to a segment to be included in that
segment’s profit or loss, and measurement of a segment’s profit or loss to be
consistent with the attribution of assets to the segment.

DO3 Messrs Gélard and Leisenring support the disclosure of information to enable
users of financial statements to evaluate the activities of an entity and the
economic environment in which it operates. However, they believe that the IFRS
will not meet this objective, even with the required disclosures and reconciliation
to the entity’s annual financial statements, because it does not define segment
profit or loss and does not require consistent attribution of assets and profit or
loss to segments.

DO4 Messrs Gélard and Leisenring support the management approach for defining
reportable segments and support requiring disclosure of selected segment
information in interim financial reports. They believe, however, that the
definitions of segment revenue, expense, result, assets and liabilities in
paragraph 16 of IAS 14 Segment Reporting should be retained in the IFRS and
applied to segments identified by the management approach. They believe that
proper external reporting of segment information should not permit the use of
non-GAAP measures because they might mislead users.

DO5 Messrs Gélard and Leisenring also believe that the changes from IAS 14 are not
justified by the need for convergence with US GAAP. IAS 14 is a disclosure
standard and therefore does not affect the reconciliation of IFRS amounts to
US GAAP, though additional disclosure from what is required now by IAS 14
might be needed to comply with US GAAP.

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Dissent of Stephen Cooper from the amendment

issued in April 2009
DO1 Mr Cooper dissents from the amendment to IFRS 8 Operating Segments made by
Improvements to IFRSs issued in April 2009.

DO2 In his view the changes are unnecessary considering that the provisions in the
Framework* regarding materiality already enable a reporting entity not to disclose
segment assets when those assets are small relative to segment profit and not
relevant to the understanding of the business. Mr Cooper believes that allowing
a reporting entity not to disclose segment assets merely because this is not
reported to the chief operating decision maker weakens IFRS 8, and may result in
segment assets not being disclosed even when they are important to
understanding the performance and financial position of that business.

* The reference to the Framework is to IASC’s Framework for the Preparation and Presentation of Financial
Statements, adopted by the IASB in 2001. In September 2010 the IASB replaced the Framework with
the Conceptual Framework for Financial Reporting.

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CONTENTS
paragraphs

Appendix A

Background information and basis for conclusions of the

US Financial Accounting Standards Board on SFAS 131
Introduction 41
Background Information 42–56
Defining Operating Segments of an Enterprise 57–80
Reportable Segments 71–72
Aggregation of Similar Operating Segments 73–74
Quantitative Thresholds 75–78
Vertically Integrated Enterprises 79–80
Accounting Principles and Allocations 81–91
Information to Be Disclosed about Segments 92–100
Interim Period Information 98–99
Restatement of Previously Reported Information 100
Enterprise-Wide Disclosures 101–108
Information about Products and Services 103
Information about Geographic Areas 104–107
Information about Major Customers 108
Competitive Harm 109–111
Cost-Benefit Considerations 112–114
Applicability to Nonpublic Enterprises and Not-for-Profit Organizations 115–118
Effective Date and Transition 119–120

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Background information and basis for conclusions of the

US Financial Accounting Standards Board on SFAS 131

Introduction
41. This appendix summarizes considerations that were deemed significant by Board
members in reaching the conclusions in this Statement. It includes reasons for
accepting certain approaches and rejecting others. Individual Board members
gave greater weight to some factors than to others.

Background Information
42. FASB Statement No. 14, Financial Reporting for Segments of a Business Enterprise, was
issued in 1976. That Statement required that business enterprises report segment
information on two bases: by industry and by geographic area. It also required
disclosure of information about export sales and major customers.

43. The Board concluded at the time it issued Statement 14 that information about
components of an enterprise, the products and services that it offers, its foreign
operations, and its major customers is useful for understanding and making
decisions about the enterprise as a whole. Financial statement users observe that
the evaluation of the prospects for future cash flows is the central element of
investment and lending decisions. The evaluation of prospects requires
assessment of the uncertainty that surrounds both the timing and the amount of
the expected cash flows to the enterprise, which in turn affect potential cash
flows to the investor or creditor. Users also observe that uncertainty results in
part from factors related to the products and services an enterprise offers and the
geographic areas in which it operates.

44. In its 1993 position paper, Financial Reporting in the 1990s and Beyond, the Association
for Investment Management and Research (AIMR) said:
[Segment data] is vital, essential, fundamental, indispensable, and integral to the
investment analysis process. Analysts need to know and understand how the various
components of a multifaceted enterprise behave economically. One weak member of
the group is analogous to a section of blight on a piece of fruit; it has the potential to
spread rot over the entirety. Even in the absence of weakness, different segments will
generate dissimilar streams of cash flows to which are attached disparate risks and
which bring about unique values. Thus, without disaggregation, there is no sensible
way to predict the overall amounts, timing, or risks of a complete enterprise’s future
cash flows. There is little dispute over the analytic usefulness of disaggregated
financial data. [pages 59 and 60]

45. Over the years, financial analysts consistently requested that financial statement
data be disaggregated to a much greater degree than it is in current practice.
Many analysts said that they found Statement 14 helpful but inadequate. In its
1993 position paper, the AIMR emphasized that:
There is no disagreement among AIMR members that segment information is totally
vital to their work. There also is general agreement among them that the current
segment reporting standard, Financial Accounting Standard No. 14, is inadequate.
Recent work by a subcommittee of the [Financial Accounting Policy Committee] has
confirmed that a substantial majority of analysts seek and, when it is available, use
quarterly segment data. [page 5]

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46. The Canadian Institute of Chartered Accountants (CICA) published a Research

Study, Financial Reporting for Segments, in August 1992. An FASB Research Report,
Reporting Disaggregated Information, was published in February 1993. In March 1993,
the FASB and the Accounting Standards Board (AcSB) of the CICA agreed to pursue
their projects jointly.

47. In May 1993, the FASB and the AcSB jointly issued an Invitation to Comment,
Reporting Disaggregated Information by Business Enterprises. That Invitation to
Comment identified certain issues related to disclosure of information about
segments, solicited comments on those issues, and asked readers to identify
additional issues. The boards received 129 comment letters from U.S. and
Canadian respondents.

48. In late 1993, the FASB and the AcSB formed the Disaggregated Disclosures
Advisory Group to advise and otherwise support the two boards in their efforts to
improve disaggregated disclosures. The members of the group included financial
statement issuers, auditors, financial analysts, and academics from both the
United States and Canada. In January 1994, the FASB and the AcSB began
discussing changes to Statement 14 and CICA Handbook Section 1700, “Segmented
Information.” The two boards met with and otherwise actively solicited the views
of analysts and preparers of financial statements about possible improvements to
the current segment reporting requirements. FASB and AcSB members and staff
also discussed disaggregated disclosures at meetings of several groups of
analysts, including the AIMR’s Financial Accounting Policy Committee.

49. In 1991, the AICPA formed the Special Committee on Financial Reporting
(the Special Committee) to make recommendations to improve the relevance and
usefulness of business reporting. The Special Committee, which comprised
financial statement auditors and preparers, established focus groups of credit
analysts and equity analysts to assist in formulating its recommendations.
The Special Committee issued its report, Improving Business Reporting—A Customer
Focus, in 1994. That report listed improvements in disclosures of business
segment information as its first recommendation and included the following
commentary:
... for users analyzing a company involved in diverse businesses, financial information
about business segments often is as important as information about the company as a
whole. Users suggest that standard setters assign the highest priority to improving
segment reporting because of its importance to their work and the perceived problems
with current reporting of segment information. [page 68]

50. The report of the Special Committee listed the following as among the most
important improvements needed:

(a) Disclosure of segment information in interim financial reports

(b) Greater number of segments for some enterprises
(c) More information about segments
(d) Segmentation that corresponds to internal management reports
(e) Consistency of segment information with other parts of an annual report.
Similar recommendations had been made in each of the last 20 years in
evaluations of corporate reporting conducted by the AIMR.

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51. The two boards reached tentative conclusions about an approach to segment
reporting that was substantially different from the approach in Statement 14 and
Section 1700. Key characteristics of the new approach were that (a) information
would be provided about segments of the enterprise that corresponded to the
structure of the enterprise’s internal organization, that is, about the divisions,
departments, subsidiaries, or other internal units that the chief operating
decision maker uses to make operating decisions and to assess an enterprise’s
performance, (b) specific amounts would be allocated to segments only if they
were allocated in reports used by the chief operating decision maker for
evaluation of segment performance, and (c) accounting policies used to produce
the disaggregated information would be the same as those used in the reports
used by the chief operating decision maker in allocating resources and assessing
segment performance.

52. In February 1995, the staffs of the FASB and the CICA distributed a paper,
“Tentative Conclusions on Financial Reporting for Segments” (Tentative
Conclusions), to selected securities analysts, the FASB Task Force on
Consolidations and Related Matters, the Disaggregated Disclosures Advisory
Group, the FASB’s Emerging Issues Task Force, the Financial Accounting
Standards Advisory Council, the AcSB’s list of Associates,* and members of
representative organizations that regularly work with the boards. The paper also
was announced in FASB and CICA publications and was sent to anyone who
requested a copy. Board and staff members discussed the Tentative Conclusions
with various analyst and preparer groups. Approximately 80 comment letters
were received from U.S. and Canadian respondents.

53. In January 1996, the FASB and the AcSB issued virtually identical Exposure Drafts,
Reporting Disaggregated Information about a Business Enterprise. The FASB received
221 comment letters and the AcSB received 73 comment letters in response to
the Exposure Drafts. A field test of the proposals was conducted in March 1996.
A public meeting was held in Toronto in October 1996 to discuss results and
concerns with field test participants. Other interested parties attended a public
meeting in Norwalk in October 1996 to discuss their concerns about the proposals
in the Exposure Drafts. The FASB decided that it could reach an informed decision
on the project without holding a public hearing.

54. The FASB and the AcSB exchanged information during the course of
redeliberating the proposals in their respective Exposure Drafts. AcSB members
and CICA staff attended FASB meetings, and FASB members and staff attended
AcSB meetings in late 1996 and in 1997 to discuss the issues raised by
respondents. Both boards reached agreement on all of the substantive issues to
achieve virtually identical standards for segment reporting in the United States
and Canada. Members of the Segment Disclosures Advisory Group (formerly the
Disaggregated Disclosures Advisory Group) discussed a draft of the standards
section in March 1997.

* Associates are individuals and organizations with a particular interest in financial reporting
issues that have volunteered to provide an outside reaction to AcSB positions at an early stage in
the AcSB’s deliberations.

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55. The International Accounting Standards Committee (IASC) issued an Exposure

Draft of a proposed International Accounting Standard that would replace
International Accounting Standard IAS 14, Reporting Financial Information by
Segment, in December 1995. Although many of its provisions are similar to those
of the FASB and AcSB Exposure Drafts, the IASC’s proposal is based on different
objectives and is different from those Exposure Drafts. A member of the IASC
Segments Steering Committee participated in FASB meetings during the
redeliberations of the Exposure Draft, and members of the FASB participated in
meetings of the IASC Segments Steering Committee. Many of the respondents to
the Exposure Drafts encouraged the FASB and the AcSB to work closely with the
IASC to achieve similar standards for segment reporting. The IASC expects to
issue a standard on segment reporting later in 1997. Although there likely will be
differences between the IASC’s requirements for segment reporting and those of
this Statement, the boards expect that it will be possible to prepare one set of
segment information that complies with both the IASC requirements and those
of this Statement.

56. This Statement addresses the following key issues:

(a) What is the appropriate basis for defining segments?

(b) What accounting principles and allocations should be used?

(c) What specific items of information should be reported?

(d) Should segment information be reported in condensed financial

statements for interim periods?

Defining Operating Segments of an Enterprise

57. The Board concluded that the industry approach to segment disclosures in
Statement 14 was not providing the information required by financial statement
users and that disclosure of disaggregated information should be based on
operating segments. This Statement defines an operating segment as a
component of an enterprise (a) that engages in business activities from which it
may earn revenues and incur expenses, (b) whose operating results are regularly
reviewed by the enterprise’s chief operating decision maker to make decisions
about resources to be allocated to the segment and to assess its performance, and
(c) for which discrete financial information is available.

58. The AIMR’s 1993 position paper and the report of the AICPA Special Committee
criticized Statement 14’s industry segment approach to reporting segment
information. The AIMR’s position paper included the following:
FAS 14 requires disclosure of line-of-business information classified by “industry
segment.” Its definition of segment is necessarily imprecise, recognizing that there are
numerous practical problems in applying that definition to different business entities
operating under disparate circumstances. That weakness in FAS 14 has been exploited
by many enterprises to suit their own financial reporting purposes. As a result, we
have seen one of the ten largest firms in the country report all of its operations as
being in a single, very broadly defined industry segment. [page 60]

The report of the Special Committee said that “[financial statement users] believe
that many companies define industry segments too broadly for business
reporting and thus report on too few industry segments” (page 69).

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59. The report of the AICPA Special Committee also said that “. . . the primary means
to improving industry segment reporting should be to align business reporting
with internal reporting” (page 69), and the AIMR’s 1993 position paper
recommended that:
... priority should be given to the production and dissemination of financial data that
reflects and reports sensibly the operations of specific enterprises. If we could obtain
reports showing the details of how an individual business firm is organized and
managed, we would assume more responsibility for making meaningful comparisons
of those data to the unlike data of other firms that conduct their business differently.
[pages 60 and 61]

Almost all of the users and many other constituents who responded to the
Exposure Draft or who met with Board and staff members agreed that defining
segments based on the structure of an enterprise’s internal organization would
result in improved information. They said that not only would enterprises be
likely to report more detailed information but knowledge of the structure of an
enterprise’s internal organization is valuable in itself because it highlights the
risks and opportunities that management believes are important.

60. Segments based on the structure of an enterprise’s internal organization have at

least three other significant advantages. First, an ability to see an enterprise
“through the eyes of management” enhances a user’s ability to predict actions or
reactions of management that can significantly affect the enterprise’s prospects
for future cash flows. Second, because information about those segments is
generated for management’s use, the incremental cost of providing information
for external reporting should be relatively low. Third, practice has demonstrated
that the term industry is subjective. Segments based on an existing internal
structure should be less subjective.

61. The AIMR and other users have commented that segment information is more
useful if it is consistent with explanatory information provided elsewhere in the
annual report. They note that the business review section and the chairman’s
letter in an annual report frequently discuss the enterprise’s operations on a basis
different from that of the segment information in the notes to the financial
statements and the management’s discussion and analysis section, which is
required by SEC rules to correspond to the segment information provided to
comply with Statement 14. That appears to occur if the enterprise is not managed
in a way that corresponds to the way it defines segments under the requirements
of Statement 14. Segmentation based on the structure of an enterprise’s internal
organization should facilitate consistent discussion of segment financial results
throughout an enterprise’s annual report.

62. Some respondents to the Exposure Draft opposed the Board’s approach for several
reasons. Segments based on the structure of an enterprise’s internal organization
may not be comparable between enterprises that engage in similar activities and
may not be comparable from year to year for an individual enterprise.
In addition, an enterprise may not be organized based on products and services
or geographic areas, and thus the enterprise’s segments may not be susceptible to
analysis using macroeconomic models. Finally, some asserted that because
enterprises are organized strategically, the information that would be reported
may be competitively harmful to the reporting enterprise.

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63. The Board acknowledges that comparability of accounting information is

important. The summary of principal conclusions in FASB Concepts Statement
No. 2, Qualitative Characteristics of Accounting Information, says: “Comparability
between enterprises and consistency in the application of methods over time
increases the informational value of comparisons of relative economic
opportunities or performance. The significance of information, especially
quantitative information, depends to a great extent on the user’s ability to relate
it to some benchmark.” However, Concepts Statement 2 also notes a danger:
Improving comparability may destroy or weaken relevance or reliability if, to secure
comparability between two measures, one of them has to be obtained by a method
yielding less relevant or less reliable information. Historically, extreme examples of
this have been provided in some European countries in which the use of standardized
charts of accounts has been made mandatory in the interest of interfirm
comparability but at the expense of relevance and often reliability as well. That kind
of uniformity may even adversely affect comparability of information if it conceals
real differences between enterprises. [paragraph 116]

64. The Board was concerned that segments defined using the approach in
Statement 14 may appear to be more comparable between enterprises than they
actually are. Statement 14 included the following:
Information prepared in conformity with [Statement 14] may be of limited usefulness
for comparing an industry segment of one enterprise with a similar industry segment
of another enterprise (i.e., for interenterprise comparison). Interenterprise
comparison of industry segments would require a fairly detailed prescription of the
basis or bases of disaggregation to be followed by all enterprises, as well as
specification of the basis of accounting for intersegment transfers and methods of
allocating costs common to two or more segments. [paragraph 76]

65. Statement 14 explained why the Board chose not to develop a detailed
prescription of the bases of disaggregation:
... differences among enterprises in the nature of their operations and in the extent to
which components of the enterprise share common facilities, equipment, materials
and supplies, or labor force make unworkable the prescription of highly detailed rules
and procedures that must be followed by all enterprises. Moreover, ... differences in
the accounting systems of business enterprises are a practical constraint on the degree
of specificity with which standards of financial accounting and reporting for
disaggregated information can be established. [paragraph 74]

Those same considerations persuaded the Board not to adopt more specific
requirements in this Statement. Both relevance and comparability will not be
achievable in all cases, and relevance should be the overriding concern.

66. The AICPA Special Committee, some respondents to the Exposure Draft, and other
constituents recommended that the Board require that an enterprise use an
alternative method of segmentation for external reporting if its internal
organization is not based on differences in products and services or geography.
Some specifically recommended adoption of the proposal in the IASC Exposure
Draft that was commonly referred to as a “safety net.” The IASC Exposure Draft
approach to identifying primary and secondary operating segments calls for
review of management’s organization of segments, but both primary and
secondary segments are required to be defined either on the basis of related

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products and services or on the basis of geography. That is, regardless of

management’s organization, segments must be grouped either by related
products and services or by geographic areas, and one set must be presented as
primary segments and the other as secondary segments.

67. The Board recognizes that an enterprise may not be divided into components with
similar products and services or geographic areas for internal purposes and that
some users of financial statements have expressed a desire for information
organized on those bases. However, instead of an alternative method of
segmentation, which would call for multiple sets of segment information in
many circumstances, the Board chose to require disclosure of additional
information about products and services and about geographic areas of
operations for the enterprise as a whole if the basic segment disclosures do not
provide it.

68. One reason for not prescribing segmentation along bases of only related products
and services or geography is that it is difficult to define clearly the circumstances
in which an alternative method that differs from the management approach
would be applied consistently. An enterprise with a relatively narrow product
line may not consider two products to be similar, while an enterprise with a broad
product line may consider those same two products to be similar. For example, a
highly diversified enterprise may consider all consumer products to be similar if
it has other businesses such as financial services and road construction. However,
an enterprise that sells only consumer products might consider razor blades to be
different from toasters.

69. A second reason for rejecting that approach is that an alternative method of
segmentation would increase the cost to some enterprises to prepare the
information. A management approach to defining segments allows enterprises to
present the information that they use internally and facilitates consistent
descriptions of the components of an enterprise from one part of the annual
report to another. An enterprise could be organized by its products and services,
geography, a mixture of both products and services and geography, or other bases,
such as customer type, and the segment information required by this Statement
would be consistent with that method of organization. Furthermore, the
enterprise-wide disclosures about products and services will provide information
about the total revenues from related products and services, and the
enterprise-wide disclosures about geography will provide information about the
revenues and assets of an enterprise both inside and outside its home country.
If material, individual foreign country information also is required.

70. The Board recognizes that some enterprises organize their segments on more
than one basis. Other enterprises may produce reports in which their activities
are presented in a variety of ways. In those situations, reportable segments are to
be determined based on a review of other factors to identify the enterprise’s
operating segments, including the nature of the activities of each component, the
existence of managers responsible for them, and the information provided to the
board of directors. In many enterprises, only one set of data is provided to the
board of directors. That set of data generally is indicative of how management
views the enterprise’s activities.

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Reportable Segments
71. The Board included a notion of reportable segments, a subset of operating
segments, in this Statement by defining aggregation criteria and quantitative
thresholds for determining which operating segments should be reported
separately in the financial statements.

72. A so-called pure management approach to segment reporting might require that
an enterprise report all of the information that is reviewed by the chief operating
decision maker to make decisions about resource allocations and to assess the
performance of the enterprise. However, that level of detail may not be useful to
readers of external financial statements, and it also may be cumbersome for an
enterprise to present. Therefore, this Statement uses a modified management
approach that includes both aggregation criteria and quantitative thresholds for
determining reportable operating segments. However, an enterprise need not
aggregate similar segments, and it may present segments that fall below the
quantitative thresholds.

Aggregation of Similar Operating Segments

73. The Board believes that separate reporting of segment information will not add
significantly to an investor’s understanding of an enterprise if its operating
segments have characteristics so similar that they can be expected to have
essentially the same future prospects. The Board concluded that although
information about each segment may be available, in those circumstances the
benefit would be insufficient to justify its disclosure. For example, a retail chain
may have 10 stores that individually meet the definition of an operating segment,
but each store may be essentially the same as the others.

74. Most respondents commented on the aggregation criteria in the Exposure Draft.
Many said that the criteria were unreasonably strict, to the extent that nearly
identical segments might not qualify for aggregation. Some respondents linked
their concerns about competitive harm and too many segments directly to the
aggregation criteria, indicating that a relaxation of the criteria would
significantly reduce those concerns. To better convey its intent, the Board revised
the wording of the aggregation criteria and the introduction to them. However,
the Board rejected recommendations that the criteria be indicators rather than
tests and that the guidance require only the expectation of similar long-term
performance of segments to justify aggregation because those changes might
result in a level of aggregation that would cause a loss of potentially valuable
information. For the same reason, the Board also rejected suggestions that
segments need be similar in only a majority of the characteristics in paragraph 17
to justify aggregation. The Board recognizes that determining when two
segments are sufficiently similar to justify aggregating them is difficult and
subjective. However, the Board notes that one of the reasons that the information
provided under Statement 14 did not satisfy financial statement users’ needs is
that segments with different characteristics in important areas were at times
aggregated.

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Quantitative Thresholds
75. In developing the Exposure Draft, the Board had concluded that quantitative
criteria might interfere with the determination of operating segments and, if
anything, might unnecessarily reduce the number of segments disclosed.
Respondents to the Exposure Draft and others urged the Board to include
quantitative criteria for determining which segments to report because they said
that some enterprises would be required to report too many segments unless
specific quantitative guidelines allowed them to omit small segments. Some
respondents said that the Exposure Draft would have required disclosure of as
many as 25 operating segments, which was not a result anticipated by the Board
in its deliberations preceding the Exposure Draft. Others said that enterprises
would report information that was too highly aggregated unless quantitative
guidelines prevented it. The Board decided that the addition of quantitative
thresholds would be a practical way to address respondents’ concerns about
competitive harm and proliferation of segments without fundamentally
changing the management approach to segment definition.

76. Similar to the requirements in Statement 14, the Board decided to require that
any operating segment that constitutes 10 percent or more of reported revenues,
assets, or profit or loss be reported separately and that reportable segments
account for at least 75 percent of an enterprise’s external revenues. The Board
decided to retain that guidance for the quantitative thresholds because it can be
objectively applied and because preparers and users of financial statements
already understand it.

77. Inclusion of quantitative thresholds similar to those in Statement 14 necessitates

guidance on how to report operating segments that do not meet the thresholds.
The Board concluded that enterprises should be permitted to aggregate
information about operating segments that do not meet the thresholds with
information about other operating segments that do not meet the thresholds if a
majority of the aggregation criteria in paragraph 17 are met. That is a more
liberal aggregation provision than that for individually material operating
segments, but it prohibits aggregation of segments that are dissimilar.

78. Paragraph 125 of Concepts Statement 2 states that “... magnitude by itself,
without regard to the nature of the item and the circumstances in which the
judgment has to be made, will not generally be a sufficient basis for a materiality
judgment.” That guidance applies to segment information. An understanding of
the material segments of an enterprise is important for understanding the
enterprise as a whole, and individual items of segment information are important
for understanding the segments. Thus, an item of segment information that, if
omitted, would change a user’s decision about that segment so significantly that
it would change the user’s decision about the enterprise as a whole is material
even though an item of a similar magnitude might not be considered material if
it were omitted from the consolidated financial statements. Therefore,
enterprises are encouraged to report information about segments that do not
meet the quantitative thresholds if management believes that it is material.
Those who are familiar with the particular circumstances of each enterprise must
decide what constitutes material.

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Vertically Integrated Enterprises

79. The Board concluded that the definition of an operating segment should include
components of an enterprise that sell primarily or exclusively to other operating
segments of the enterprise if the enterprise is managed that way. Information
about the components engaged in each stage of production is particularly
important for understanding vertically integrated enterprises in certain
businesses, for example, oil and gas enterprises. Different activities within the
enterprise may have significantly different prospects for future cash flows, and
users of financial statements have asserted that they need to know results of each
operation.

80. Some respondents to the Exposure Draft opposed the requirement to report
vertically integrated segments separately. They said that the segment results may
not be comparable between enterprises and that transfer prices are not
sufficiently reliable for external reporting purposes. The Board considered an
approach that would have required separate reporting of vertically integrated
segments only if transfer prices were based on quoted market prices and if there
was no basis for combining the selling segment and the buying segment.
However, that would have been a significant departure from the management
approach to defining segments. The Board also was concerned that the criteria
would be unworkable. Therefore, the Board decided to retain the Exposure
Draft’s provisions for vertically integrated segments.

Accounting Principles and Allocations

81. The Board decided that the information to be reported about each segment
should be measured on the same basis as the information used by the chief
operating decision maker for purposes of allocating resources to segments and
assessing segments’ performance. That is a management approach to measuring
segment information as proposed in the Exposure Draft. The Board does not
think that a separate measure of segment profit or loss or assets should have to be
developed solely for the purpose of disclosing segment information. For example,
an enterprise that accounts for inventory using a specialized valuation method
for internal purposes should not be required to restate inventory amounts for
each segment, and an enterprise that accounts for pension expense only on a
consolidated basis should not be required to allocate pension expense to each
operating segment.

82. The report of the AICPA Special Committee said that the Board “should allow
companies to report a statistic on the same basis it is reported for internal
purposes, if the statistic is reported internally. The usefulness of information
prepared only for [external] reporting is questionable. Users want to understand
management’s perspective on the company and the implications of key
statistics.” It also said that “key statistics to be reported [should] be limited to
statistics a company has available...” (page 72).

83. Respondents to the Exposure Draft had mixed reactions to its measurement
guidance. Very few suggested that the Board require allocations solely for
external reporting purposes. Most agreed that allocations are inherently
arbitrary and may not be meaningful if they are not used for management
purposes. No respondents suggested that intersegment transfers should be

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reported on any basis other than that used internally. However, some
respondents recommended that information about each segment be provided
based on the accounting principles used in the enterprise’s general-purpose
financial statements. Some observed that unadjusted information from internal
sources would not necessarily comply with generally accepted accounting
principles and, for that reason, might be difficult for users to understand. Other
respondents argued that comparability between enterprises would be improved
if the segment information were provided on the basis of generally accepted
accounting principles. Finally, a few questioned the verifiability of the
information.

84. The Board decided not to require that segment information be provided in
accordance with the same generally accepted accounting principles used to
prepare the consolidated financial statements for several reasons. Preparing
segment information in accordance with the generally accepted accounting
principles used at the consolidated level would be difficult because some
generally accepted accounting principles are not intended to apply at a segment
level. Examples include allocation of the cost of an acquisition to individual
assets and liabilities of a subsidiary using the purchase method of accounting,
accounting for the cost of enterprise-wide employee benefit plans, accounting for
income taxes in an enterprise that files a consolidated income tax return, and
accounting for inventory on a last-in, first-out basis if the pools include items in
more than one segment. In addition, there are no generally accepted accounting
principles for allocating joint costs, jointly used assets, or jointly incurred
liabilities to segments or for pricing intersegment transfers. As a consequence,
it generally is not feasible to present segment profitability in accordance with
generally accepted accounting principles.

85. The Board recognizes that segment information is subject to certain limitations
and that some of that information may not be susceptible to the same degree of
verifiability as some other financial information. However, verifiability is not the
only important qualitative characteristic of accounting information. Verifiability
is a component of reliability, which is one of two characteristics that contribute
to the usefulness of accounting information. The other is relevance, which is
equally important. Concepts Statement 2 states:
Although financial information must be both relevant and reliable to be useful,
information may possess both characteristics to varying degrees. It may be possible to
trade relevance for reliability or vice versa, though not to the point of dispensing with
one of them altogether. ... trade-offs between characteristics may be necessary or
beneficial.

In a particular situation, the importance attached to relevance in relation to the

importance of other decision specific qualities of accounting information (for
example, reliability) will be different for different information users, and their
willingness to trade one quality for another will also differ. [paragraphs 42 and 45]

86. It is apparent that users are willing to trade a degree of reliability in segment
information for more relevant information. The AIMR’s 1993 position paper
states:
Analysts need financial statements structured so as to be consistent with how the
business is organized and managed. That means that two different companies in the

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same industry may have to report segment data differently because they are
structured differently themselves. [page 20]

But, as previously noted, the position paper says that, under those circumstances,
analysts “would assume more responsibility for making meaningful comparisons
of those data to the unlike data of other firms that conduct their business
differently” (page 61).

87. The Board believes that the information required by this Statement meets the
objective of reliability of which both representational faithfulness and
verifiability are components. An auditor can determine whether the information
reported in the notes to the financial statements came from the required source
by reviewing management reports or minutes from meetings of the board of
directors. The information is not required to be provided on a specified basis, but
the enterprise is required to explain the basis on which it is provided and to
reconcile the segment information to consolidated enterprise totals. Adequate
explanation and an appropriate reconciliation will enable a user to understand
the information and its limitations in the context of the enterprise’s financial
statements. The auditor can test both the explanation of segment amounts and
the reconciliations to consolidated totals. Furthermore, because management
uses that information in its decision-making processes, that information is likely
to be highly reliable. The information provided to comply with Statement 14 was
more difficult to verify in many situations and was less reliable. Because it was
prepared solely for external reporting purposes, it required allocations that may
have been arbitrary, and it was based on accounting principles that may have
been difficult to apply at the segment level.

88. Paragraph 29 requires amounts allocated to a segment to be allocated on a

reasonable basis. However, the Board believes that the potential increased
reliability that might have been achieved by requiring allocation of consolidated
amounts is illusory because expenses incurred at the consolidated level could be
allocated to segments in a variety of ways that could be considered “reasonable.”
For example, an enterprise could use either the number of employees in each
segment or the segment’s total salary expense in relation to the consolidated
amounts as a basis for allocating pension expense to segments. Those two
approaches to allocation could result in significantly different measures of
segment profit or loss. However, both the number of employees and the total
salary expense might be reasonable bases on which to allocate total pension
expense. In contrast, it would not seem reasonable for an enterprise to allocate
pension expense to a segment that had no employees eligible for the pension
plan. Because of the potential for misleading information that may result from
such allocations, the Board decided that it is appropriate for this Statement to
require that amounts allocated to a segment be allocated on a reasonable basis.

89. The Board also considered explicitly requiring that revenues and expenses
directly incurred by or directly attributable to an operating segment be reported
by that segment. However, it decided that, in some cases, whether an item of
revenue or expense is attributable to an operating segment is a matter of
judgment. Further, such an explicit requirement would be an additional

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modification of the management approach to measurement. While the Board

decided not to include an explicit requirement, it believes that many items of
revenue or expense clearly relate to a particular segment and that it would be
unlikely that the information used by management would omit those items.

90. To assist users of financial statements in understanding segment disclosures, this

Statement requires that enterprises provide sufficient explanation of the basis on
which the information was prepared. That disclosure must include any
differences in the basis of measurement between the consolidated amounts and
the segment amounts. It also must indicate whether allocations of items were
made symmetrically. An enterprise may allocate an expense to a segment
without allocating the related asset; however, disclosure of that fact is required.
Enterprises also are required to reconcile to the consolidated totals in the
enterprise’s financial statements the totals of reportable segment assets, segment
revenues, segment profit or loss, and any other significant segment information
that is disclosed.

91. In addition, the advantages of reporting unadjusted management information

are significant. That practice is consistent with defining segments based on the
structure of the enterprise’s internal organization. It imposes little incremental
cost on the enterprise and requires little incremental time to prepare. Thus, the
enterprise can more easily report segment information in condensed financial
statements for interim periods and can report more information about each
segment in annual financial statements. Information used by management also
highlights for a user of financial statements the risks and opportunities that
management considers important.

Information to Be Disclosed about Segments

92. The items of information about each reportable operating segment that must be
disclosed as described in paragraphs 25–31 represent a balance between the needs
of users of financial statements who may want a complete set of financial
statements for each segment and the costs to preparers who may prefer not to
disclose any segment information. Statement 14 required disclosure of internal
and external revenues; profit or loss; depreciation, depletion, and amortization
expense; and unusual items as defined in APB Opinion No. 30, Reporting the Results
of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions, for each segment.
Statement 14 also required disclosure of total assets, equity in the net income of
investees accounted for by the equity method, the amount of investment in
equity method investees, and total expenditures for additions to long-lived assets.
Some respondents to the Exposure Draft objected to disclosing any information
that was not required by Statement 14, while others recommended disclosure of
additional items that are not required by this Statement. This Statement calls for
the following additional disclosures only if the items are included in the measure
of segment profit or loss that is reviewed by the chief operating decision maker:
significant noncash items, interest revenue, interest expense, and income tax
expense.

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93. Some respondents to the Exposure Draft expressed concern that the proposals
would increase the sheer volume of information compared to what was required
to be reported under Statement 14. The Board considers that concern to be
overstated for several reasons. Although this Statement requires disclosure of
more information about an individual operating segment than Statement 14
required for an industry segment, this Statement requires disclosure of
information about only one type of segment–reportable operating segments—
while Statement 14 required information about two types of segments—industry
segments and geographic segments. Moreover, Statement 14 required that many
enterprises create information solely for external reporting, while almost all of
the segment information that this Statement requires is already available in
management reports. The Board recognizes, however, that some enterprises may
find it necessary to create the enterprise-wide information about products and
services, geographic areas, and major customers required by paragraphs 36–39.

94. The Board decided to require disclosure of significant noncash items included in
the measure of segment profit or loss and information about total expenditures
for additions to long-lived segment assets (other than financial instruments,
long-term customer relationships of a financial institution, mortgage and other
servicing rights, deferred policy acquisition costs, and deferred tax assets) if that
information is reported internally because it improves financial statement users’
abilities to estimate cash-generating potential and cash requirements of
operating segments. As an alternative, the Board considered requiring disclosure
of operating cash flow for each operating segment. However, many respondents
said that disclosing operating cash flow in accordance with FASB Statement
No. 95, Statement of Cash Flows, would require that they gather and process
information solely for external reporting purposes. They said that management
often evaluates cash generated or required by segments in ways other than by
calculating operating cash flow in accordance with Statement 95. For that reason,
the Board decided not to require disclosure of cash flow by segment.

95. Disclosure of interest revenue and interest expense included in reported segment
profit or loss is intended to provide information about the financing activities of
a segment. The Exposure Draft proposed that an enterprise disclose gross interest
revenue and gross interest expense for all segments in which reported profit or
loss includes those items. Some respondents said that financial services segments
generally are managed based on net interest revenue, or the “spread,” and that
management looks only to that data in its decision-making process. Therefore
those segments should be required to disclose only the net amount and not both
gross interest revenue and expense. Those respondents noted that requiring
disclosure of both gross amounts would be analogous to requiring nonfinancial
services segments to disclose both sales and cost of sales. The Board decided that
segments that derive a majority of revenue from interest should be permitted to
disclose net interest revenue instead of gross interest revenue and gross interest
expense if management finds that amount to be more relevant in managing the
segment. Information about interest is most important if a single segment
comprises a mix of financial and nonfinancial operations. If a segment is
primarily a financial operation, interest revenue probably constitutes most of

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segment revenues and interest expense will constitute most of the difference
between reported segment revenues and reported segment profit or loss. If the
segment has no financial operations or only immaterial financial operations, no
information about interest is required.

96. The Board decided not to require the disclosure of segment liabilities.
The Exposure Draft proposed that an enterprise disclose segment liabilities
because the Board believed that liabilities are an important disclosure for
understanding the financing activities of a segment. The Board also noted that
the requirement in FASB Statement No. 94, Consolidation of All Majority-Owned
Subsidiaries, to disclose assets, liabilities, and profit or loss about previously
unconsolidated subsidiaries was continued from APB Opinion No. 18, The Equity
Method of Accounting for Investments in Common Stock, pending completion of the
project on disaggregated disclosures. However, in commenting on the disclosures
that should be required by this Statement, many respondents said that liabilities
are incurred centrally and that enterprises often do not allocate those amounts to
segments. The Board concluded that the value of information about segment
liabilities in assessing the performance of the segments of an enterprise was
limited.

97. The Board decided not to require disclosure of research and development expense
included in the measure of segment profit or loss. The Exposure Draft would have
required that disclosure to provide financial statement users with information
about the operating segments in which an enterprise is focusing its product
development efforts. Disclosure of research and development expense was
requested by a number of financial statement users and was specifically
requested in both the report of the AICPA’s Special Committee and the AIMR’s
1993 position paper. However, respondents said that disclosing research and
development expense by segment may result in competitive harm by providing
competitors with early insight into the strategic plans of an enterprise. Other
respondents observed that research and development is only one of a number of
items that indicate where an enterprise is focusing its efforts and that it is much
more significant in some enterprises than in others. For example, costs of
employee training and advertising were cited as items that often are more
important to some enterprises than research and development, calling into
question the relevance of disclosing only research and development expense.
Additionally, many respondents said that research and development expense
often is incurred centrally and not allocated to segments. The Board therefore
decided not to require the disclosure of research and development expense by
segment.

Interim Period Information

98. This Statement requires disclosure of limited segment information in condensed
financial statements that are included in quarterly reports to shareholders, as was
proposed in the Exposure Draft. Statement 14 did not apply to those condensed
financial statements because of the expense and the time required for producing
segment information under Statement 14. A few respondents to the Exposure
Draft said that reporting segment information in interim financial statements
would be unnecessarily burdensome. However, users contended that, to be

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timely, segment information is needed more often than annually and that the
difficulties of preparing it on an interim basis could be overcome by an approach
like the one in this Statement. Managers of many enterprises agree and have
voluntarily provided segment information for interim periods.

99. The Board decided that the condensed financial statements in interim reports
issued to shareholders should include disclosure of segment revenues from
external customers, intersegment revenues, a measure of segment profit or loss,
material changes in segment assets, differences in the basis of segmentation or
the way segment profit or loss was measured in the previous annual period, and
a reconciliation to the enterprise’s total profit or loss. That decision is a
compromise between the needs of users who want the same segment information
for interim periods as that required in annual financial statements and the costs
to preparers who must report the information. Users will have some key
information on a timely basis. Enterprises should not incur significant
incremental costs to provide the information because it is based on information
that is used internally and therefore already available.

Restatement of Previously Reported Information

100. The Board decided to require restatement of previously reported segment
information following a change in the composition of an enterprise’s segments
unless it is impracticable to do so. Changes in the composition of segments
interrupt trends, and trend analysis is important to users of financial statements.
Some financial statement issuers have said that their policy is to restate one or
more prior years for internal trend analysis. Many reorganizations result in
discrete profit centers’ being reassigned from one segment to another and lead to
relatively simple restatements. However, if an enterprise undergoes a
fundamental reorganization, restatement may be very difficult and expensive.
The Board concluded that in those situations restatement may be impracticable
and, therefore, should not be required. However, if an enterprise does not restate
its segment information, the enterprise is required to provide current-period
segment information on both the old and new bases of segmentation in the year
in which the change occurs unless it is impracticable to do so.

Enterprise-Wide Disclosures
101. Paragraphs 36–39 require disclosure of information about an enterprise’s
products and services, geographic areas, and major customers, regardless of the
enterprise’s organization. The required disclosures need be provided only if they
are not included as part of the disclosures about segments. The Exposure Draft
proposed requiring additional disclosures about products and services and
geographic areas by segment. Many respondents said that that proposal would
have resulted in disclosure of excessive amounts of information. Some
enterprises providing a variety of products and services throughout many
countries, for example, would have been required to present a large quantity of
information that would have been time-consuming to prepare and of
questionable benefit to most financial statement users. The Board decided that
additional disclosures provided on an enterprise-wide basis rather than on a
segment basis would be appropriate and not unduly burdensome. The Board also

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agreed that those enterprise-wide disclosures are appropriate for all enterprises
including those that have a single operating segment if the enterprise offers a
range of products and services, derives revenues from customers in more than
one country, or both.

102. Based on reviews of published information about public enterprises, discussions

with constituents, and a field test of the Exposure Draft, the Board believes that
most enterprises are organized by products and services or by geography and will
report one or both of those types of information in their reportable operating
segment disclosures. However, some enterprises will be required by paragraphs
36–39 to report additional information because the enterprise-wide disclosures
are required for all enterprises, even those that have a single reportable segment.

Information about Products and Services

103. This Statement requires that enterprises report revenues from external
customers for each product and service or each group of similar products and
services for the enterprise as a whole. Analysts said that an analysis of trends in
revenues from products and services is important in assessing both past
performance and prospects for future growth. Those trends can be compared to
benchmarks such as industry statistics or information reported by competitors.
Information about the assets that are used to produce specific products and
deliver specific services also might be useful. However, in many enterprises,
assets are not dedicated to specific products and services and reporting assets by
products and services would require arbitrary allocations.

Information about Geographic Areas

104. This Statement requires disclosure of information about both revenues and assets
by geographic area. Analysts said that information about revenues from
customers in different geographic areas assists them in understanding
concentrations of risks due to negative changes in economic conditions and
prospects for growth due to positive economic changes. They said that
information about assets located in different areas assists them in understanding
concentrations of risks (for example, political risks such as expropriation).

105. Statement 14 requires disclosure of geographic information by geographic

region, whereas this Statement requires disclosure of individually material
countries as well as information for the enterprise’s country of domicile and all
foreign countries in the aggregate. This Statement’s approach has two significant
benefits. First, it will reduce the burden on preparers of financial statements
because most enterprises are likely to have material operations in only a few
countries or perhaps only in their country of domicile. Second, and more
important, it will provide information that is more useful in assessing the impact
of concentrations of risk. Information disclosed by country is more useful
because it is easier to interpret. Countries in contiguous areas often experience
different rates of growth and other differences in economic conditions. Under
the requirements of Statement 14, enterprises often reported information about
broad geographic areas that included groupings such as Europe, Africa, and the
Middle East. Analysts and others have questioned the usefulness of that type of
broad disclosure.

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106. Respondents to the Exposure Draft questioned how revenues should be allocated
to individual countries. For example, guidance was requested for situations in
which products are shipped to one location but the customer resides in another
location. The Board decided to provide flexibility concerning the basis on which
enterprises attribute revenues to individual countries rather than requiring that
revenues be attributed to countries according to the location of customers.
The Board also decided to require that enterprises disclose the basis they have
adopted for attributing revenues to countries to permit financial statement users
to understand the geographic information provided.

107. As a result of its decision to require geographic information on an enterprise-wide

basis, the Board decided not to require disclosure of capital expenditures on
certain long-lived assets by geographic area. Such information on an
enterprise-wide basis is not necessarily helpful in forecasting future cash flows of
operating segments.

Information about Major Customers

108. The Board decided to retain the requirement in Statement 14, as amended by
FASB Statement No. 30, Disclosure of Information about Major Customers, to report
information about major customers because major customers of an enterprise
represent a significant concentration of risk. The 10 percent threshold is
arbitrary; however, it has been accepted practice since Statement 14 was issued,
and few have suggested changing it.

Competitive Harm
109. A number of respondents to the Exposure Draft noted the potential for
competitive harm as a result of disclosing segment information in accordance
with this Statement. The Board considered adopting special provisions to reduce
the potential for competitive harm from certain segment information but
decided against it. In the Invitation to Comment, the Tentative Conclusions, and
the Exposure Draft, the Board asked constituents for specific illustrations of
competitive harm that has resulted from disclosing segment information. Some
respondents said that public enterprises may be at a disadvantage to nonpublic
enterprises or foreign competitors that do not have to disclose segment
information. Other respondents suggested that information about narrowly
defined segments may put an enterprise at a disadvantage in price negotiations
with customers or in competitive bid situations.

110. Some respondents said that if a competitive disadvantage exists, it is a

consequence of an obligation that enterprises have accepted to gain greater
access to capital markets, which gives them certain advantages over nonpublic
enterprises and many foreign enterprises. Other respondents said that
enterprises are not likely to suffer competitive harm because most competitors
have other sources of more detailed information about an enterprise than that
disclosed in the financial statements. In addition, the information that is
required to be disclosed about an operating segment is no more detailed or
specific than the information typically provided by a smaller enterprise with a
single operation.

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111. The Board was sympathetic to specific concerns raised by certain constituents;
however, it decided that a competitive-harm exemption was inappropriate
because it would provide a means for broad noncompliance with this Statement.
Some form of relief for single-product or single-service segments was explored;
however, there are many enterprises that produce a single product or a single
service that are required to issue general-purpose financial statements. Those
statements would include the same information that would be reported by
single-product or single-service segments of an enterprise. The Board concluded
that it was not necessary to provide an exemption for single-product or
single-service segments because enterprises that produce a single product or
service that are required to issue general-purpose financial statements have that
same exposure to competitive harm. The Board noted that concerns about
competitive harm were addressed to the extent feasible by four changes made
during redeliberations: (a) modifying the aggregation criteria, (b) adding
quantitative materiality thresholds for identifying reportable segments,
(c) eliminating the requirements to disclose research and development expense
and liabilities by segment, and (d) changing the second-level disclosure
requirements about products and services and geography from a segment basis to
an enterprise-wide basis.

Cost-Benefit Considerations
112. One of the precepts of the Board's mission is to promulgate standards only if the
expected benefits of the resulting information exceed the perceived costs.
The Board strives to determine that a proposed standard will fill a significant
need and that the costs incurred to satisfy that need, as compared with other
alternatives, are justified in relation to the overall benefits of the resulting
information. The Board concluded that the benefits that will result from this
Statement will exceed the related costs.

113. The Board believes that the primary benefits of this Statement are that enterprises
will report segment information in interim financial reports, some enterprises
will report a greater number of segments, most enterprises will report more items
of information about each segment, enterprises will report segments that
correspond to internal management reports, and enterprises will report segment
information that will be more consistent with other parts of their annual reports.

114. This Statement will reduce the cost of providing disaggregated information for
many enterprises. Statement 14 required that enterprises define segments by
both industry and by geographical area, ways that often did not match the way
that information was used internally. Even if the reported segments aligned with
the internal organization, the information required was often created solely for
external reporting because Statement 14 required certain allocations of costs,
prohibited other cost allocations, and required allocations of assets to segments.
This Statement requires that information about operating segments be provided
on the same basis that it is used internally. The Board believes that most of the
enterprise-wide disclosures in this Statement about products and services,
geography, and major customers typically are provided in current financial
statements or can be prepared with minimal incremental cost.

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Applicability to Nonpublic Enterprises and Not-for-Profit

Organizations
115. The Board decided to continue to exempt nonpublic enterprises from the
requirement to report segment information. Few users of nonpublic enterprises’
financial statements have requested that the Board require that those enterprises
provide segment information.

116. At the time the Board began considering improvements to disclosures about
segment information, FASB Statement No. 117, Financial Statements of Not-for-Profit
Organizations, had not been issued and there were no effective standards for
consolidated financial statements of not-for-profit organizations. Most
not-for-profit organizations provided financial information for each of their
funds, which is a form of disaggregated information. The situation in Canada was
similar. Thus, when the two boards agreed to pursue a joint project, they decided
to limit the scope to public business enterprises.

117. The Board provided a limited form of disaggregated information in paragraph 26

of Statement 117, which requires disclosure of expense by functional
classification. However, the Board acknowledges that the application of that
Statement may increase the need for disaggregated information about
not-for-profit organizations. A final Statement expected to result from the FASB
Exposure Draft, Consolidated Financial Statements: Policy and Procedures, also may
increase that need by requiring aggregation of information about more entities
in the financial statements of not-for-profit organizations.

118. The general approach of providing information based on the structure of an

enterprise’s internal organization may be appropriate for not-for-profit
organizations. However, the Board decided not to add not-for-profit organizations
to the scope of this Statement. Users of financial statements of not-for-profit
organizations have not urged the Board to include those organizations, perhaps
because they have not yet seen the effects of Statement 117 and the Exposure Draft
on consolidations. Furthermore, the term not-for-profit organizations applies to a
wide variety of entities, some of which are similar to business enterprises and
some of which are very different. There are likely to be unique characteristics of
some of those entities or special user needs that require special provisions, which
the Board has not studied. In addition, the AcSB has recently adopted standards
for reporting by not-for-profit organizations that are different from Statement 117.
In the interest of completing this joint project in a timely manner, the Board
decided not to undertake the research and deliberations that would be necessary
to adapt the requirements of this Statement to not-for-profit organizations at this
time. Few respondents to the Exposure Draft disagreed with the Board’s position.

Effective Date and Transition

119. The Board concluded that this Statement should be effective for financial
statements issued for fiscal years beginning after December 15, 1997.
In developing the Exposure Draft, the Board had decided on an effective date of
December 15, 1996. The Board believed that that time frame was reasonable
because almost all of the information that this Statement requires is generated by

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systems already in place within an enterprise and a final Statement was expected
to be issued before the end of 1996. However, respondents said that some
enterprises may need more time to comply with the requirements of this
Statement than would have been provided under the Exposure Draft.

120. The Board also decided not to require that segment information be reported in
financial statements for interim periods in the initial year of application. Some
of the information that is required to be reported for interim periods is based on
information that would have been reported in the most recent annual financial
statements. Without a full set of segment information to use as a comparison and
to provide an understanding of the basis on which it is provided, interim
information would not be as meaningful.

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Appendix B

Amendments to Basis for Conclusions on other IFRSs

This appendix contains amendments to the Basis for Conclusions on other IFRSs that are necessary in
order to note the replacement of IAS 14 by IFRS 8.

*****

The amendments contained in this appendix when IFRS 8 was issued in 2006 have been incorporated into
the text of the Basis for Conclusions on IFRSs 1, 6 and 7 and IASs 27 and 36 as issued at 30 November 2006.

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CONTENTS
paragraphs

GUIDANCE ON IMPLEMENTING
IFRS 8 OPERATING SEGMENTS
INTRODUCTION IG1
DESCRIPTIVE INFORMATION ABOUT AN ENTITY’S REPORTABLE SEGMENTS IG2
Description of the types of products and services from which each
reportable segment derives its revenues (paragraph 22(b))
Measurement of operating segment profit or loss, assets and liabilities
(paragraph 27)
Factors that management used to identify the entity’s reportable segments
(paragraph 22(a))
INFORMATION ABOUT REPORTABLE SEGMENT PROFIT OR LOSS,
ASSETS AND LIABILITIES IG3
RECONCILIATIONS OF REPORTABLE SEGMENT REVENUES, PROFIT OR LOSS,
ASSETS AND LIABILITIES IG4
GEOGRAPHICAL INFORMATION IG5
INFORMATION ABOUT MAJOR CUSTOMERS IG6
DIAGRAM TO ASSIST IN IDENTIFYING REPORTABLE SEGMENTS IG7
APPENDIX
Amendments to guidance on other IFRSs

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Guidance on implementing
IFRS 8 Operating Segments
This guidance accompanies, but is not part of, IFRS 8.

Introduction

IG1 This implementation guidance provides examples that illustrate the disclosures
required by IFRS 8 and a diagram to assist in identifying reportable segments.
The formats in the illustrations are not requirements. The Board encourages a
format that provides the information in the most understandable manner in the
specific circumstances. The following illustrations are for a single hypothetical
entity referred to as Diversified Company.

Descriptive information about an entity’s reportable segments

IG2 The following illustrates the disclosure of descriptive information about an

entity’s reportable segments (the paragraph references are to the relevant
requirements in the IFRS).

Description of the types of products and services from

which each reportable segment derives its revenues
(paragraph 22(b))

Diversified Company has five reportable segments: car parts, motor vessels,
software, electronics and finance. The car parts segment produces
replacement parts for sale to car parts retailers. The motor vessels segment
produces small motor vessels to serve the offshore oil industry and similar
businesses. The software segment produces application software for sale to
computer manufacturers and retailers. The electronics segment produces
integrated circuits and related products for sale to computer manufacturers.
The finance segment is responsible for portions of the company’s financial
operations including financing customer purchases of products from other
segments and property lending operations.

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Measurement of operating segment profit or loss, assets and

liabilities (paragraph 27)

The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies except that
pension expense for each operating segment is recognised and measured on the
basis of cash payments to the pension plan. Diversified Company evaluates
performance on the basis of profit or loss from operations before tax expense
not including non-recurring gains and losses and foreign exchange gains and
losses.
Diversified Company accounts for intersegment sales and transfers as if the sales
or transfers were to third parties, ie at current market prices.

Factors that management used to identify the entity’s reportable

segments (paragraph 22(a))

Diversified Company’s reportable segments are strategic business units that

offer different products and services. They are managed separately because
each business requires different technology and marketing strategies. Most of
the businesses were acquired as individual units, and the management at the
time of the acquisition was retained.

Information about reportable segment profit or loss, assets

and liabilities

IG3 The following table illustrates a suggested format for disclosing information
about reportable segment profit or loss, assets and liabilities (paragraphs 23 and
24). The same type of information is required for each year for which a statement
of comprehensive income is presented. Diversified Company does not allocate
tax expense (tax income) or non-recurring gains and losses to reportable
segments. In addition, not all reportable segments have material non-cash items
other than depreciation and amortisation in profit or loss. The amounts in this
illustration, denominated as ‘currency units (CU)’, are assumed to be the amounts
in reports used by the chief operating decision maker.

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Car Motor Software Electronics Finance All Totals

parts vessels other
CU CU CU CU CU CU CU
Revenues from
external
customers 3,000 5,000 9,500 12,000 5,000 1,000(a) 35,500
Intersegment
revenues – – 3,000 1,500 – – 4,500
Interest revenue 450 800 1,000 1,500 – – 3,750
Interest expense 350 600 700 1,100 – – 2,750
Net interest
revenue(b) – – – – 1,000 – 1,000
Depreciation and
amortisation 200 100 50 1,500 1,100 – 2,950
Reportable
segment profit 200 70 900 2,300 500 100 4,070
Other material
non-cash items:
Impairment of
assets – 200 – – – – 200
Reportable
segment assets 2,000 5,000 3,000 12,000 57,000 2,000 81,000
Expenditures for
reportable
segment non-
current assets 300 700 500 800 600 – 2,900
Reportable
segment liabilities 1,050 3,000 1,800 8,000 30,000 – 43,850

(a) Revenues from segments below the quantitative thresholds are attributable to four
operating segments of Diversified Company. Those segments include a small
property business, an electronics equipment rental business, a software consulting
practice and a warehouse leasing operation. None of those segments has ever met
any of the quantitative thresholds for determining reportable segments.

(b) The finance segment derives a majority of its revenue from interest. Management
primarily relies on net interest revenue, not the gross revenue and expense amounts,
in managing that segment. Therefore, as permitted by paragraph 23, only the net
amount is disclosed.

Reconciliations of reportable segment revenues, profit or loss,

assets and liabilities

IG4 The following illustrate reconciliations of reportable segment revenues, profit or

loss, assets and liabilities to the entity’s corresponding amounts (paragraph 28(a)–(d)).
Reconciliations also are required to be shown for every other material item of
information disclosed (paragraph 28(e)). The entity’s financial statements are

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 IFRS 8 IG

assumed not to include discontinued operations. As discussed in paragraph IG2,

the entity recognises and measures pension expense of its reportable segments on
the basis of cash payments to the pension plan, and it does not allocate certain
items to its reportable segments.

Revenues CU
Total revenues for reportable segments 39,000
Other revenues 1,000
Elimination of intersegment revenues (4,500)
Entity’s revenues 35,500

Profit or loss CU
Total profit or loss for reportable segments 3,970
Other profit or loss 100
Elimination of intersegment profits (500)
Unallocated amounts:
Litigation settlement received 500
Other corporate expenses (750)
Adjustment to pension expense in consolidation (250)
Income before income tax expense 3,070

Assets CU
Total assets for reportable segments 79,000
Other assets 2,000
Elimination of receivable from corporate headquarters (1,000)
Other unallocated amounts 1,500
Entity’s assets 81,500

Liabilities CU
Total liabilities for reportable segments 43,850
Unallocated defined benefit pension liabilities 25,000
Entity’s liabilities 68,850

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IFRS 8 IG

Other material items Reportable Adjustments Entity totals

segment totals CU CU
CU
Interest revenue 3,750 75 3,825
Interest expense 2,750 (50) 2,700
Net interest revenue
(finance segment only) 1,000 – 1,000
Expenditures for assets 2,900 1,000 3,900
Depreciation and
amortisation 2,950 – 2,950
Impairment of assets 200 – 200

The reconciling item to adjust expenditures for assets is the amount incurred for
the corporate headquarters building, which is not included in segment
information. None of the other adjustments are material.

Geographical information

IG5 The following illustrates the geographical information required by paragraph 33.
(Because Diversified Company’s reportable segments are based on differences in
products and services, no additional disclosures of revenue information about
products and services are required (paragraph 32).)

Geographical information Revenues(a) Non-current assets

CU CU
United States 19,000 11,000
Canada 4,200 –
China 3,400 6,500
Japan 2,900 3,500
Other countries 6,000 3,000
Total 35,500 24,000

(a) Revenues are attributed to countries on the basis of the customer’s location.

Information about major customers

IG6 The following illustrates the information about major customers required by
paragraph 34. Neither the identity of the customer nor the amount of revenues
for each operating segment is required.

Revenues from one customer of Diversified Company’s software and electronics

segments represent approximately CU5,000 of the Company’s total revenues.

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 IFRS 8 IG

Diagram to assist in identifying reportable segments

IG7 The following diagram illustrates how to apply the main provisions for
identifying reportable segments as defined in the IFRS. The diagram is a visual
supplement to the IFRS. It should not be interpreted as altering or adding to any
requirements of the IFRS nor should it be regarded as a substitute for the
requirements.

Diagram for identifying reportable segments

Identify operating segments based on
management reporting system
(paragraphs 5–10)


Do some
operating segments Yes Aggregate


meet all aggregation
segments
criteria?
if desired
(paragraph 12)


No

Do some
operating segments
Yes

meet the quantitative
thresholds?
(paragraph 13)


No

Do some
Aggregate remaining operating
Yes


segments segments meet a majority of the



if desired aggregation criteria?

(paragraph 14)


No

Do identified
reportable segments Yes
account for 75 per cent of the
entity’s revenue?
(paragraph 15)

 No
Report additional segment if external
revenue of all segments is less than


75 per cent of the entity’s revenue

(paragraph 15)
 

These are reportable Aggregate remaining segments



segments to be into 'all other segments’

disclosed category (paragraph 16)

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IFRS 8 IG

Appendix
Amendments to other Implementation Guidance
This appendix contains amendments to guidance on other IFRSs that are necessary in order to ensure
consistency with IFRS 8. In the amended paragraphs, new text is underlined and deleted text is struck
through.

*****

The amendments contained in this appendix when IFRS 8 was issued in 2006 have been incorporated into
the text of the Guidance on Implementing IFRS 4 and the Illustrative Examples accompanying IAS 36,
both as issued at 30 November 2006.

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