You are on page 1of 4

AUSTRALIAN ACCOUNTING STANDARDS

Fact Sheet

AASB 114 Segment Reporting

Adopted from IAS 14 Segment Reporting


(This fact sheet is based on the standard as at 31 December 2007.)
Note: AASB 8 Operating Segments will supersede AASB 114 when AASB 8 is adopted. AASB 8 is applicable to annual reporting periods
beginning on or after 1 January 2009, hence AASB 114 will be superseded in due course. Early adoption of AASB 8 is permitted for annual
reporting periods beginning on or after 1 January 2005.

OBJECTIVE
AASB 114 Segment Reporting prescribes the principles for reporting financial information by segment information about the different
types of products and services an entity produces and the different geographical areas in which it operates to help users of financial
reports understand the entity’s performance, assess risks and returns and make more informed judgements about the entity as a whole.

IDENTIFYING REPORTABLE SEGMENTS


Business and geographical segments
A business segment is a distinguishable component of an entity that is engaged in providing an individual product or service or a group of
related products or services and that is subject to risks and returns that are different from those of other segments.

CPA Slate
A geographical segment is a distinguishable component Blue
of an entity that is engaged in providing products or services within a particular
5405(CMYK)
economic environment and that is subject to risks and returns that are different from those of components operating in other economic
environments.
A4P RIM
Reportable segments
Two or more internally reported business segments or geographical segments that are substantially similar may be combined into a single
business or geographical segment.

A business segment or geographical segment is a reportable segment if a majority of its revenue is earned from sales to external
customers and at least one of the following applies
• its revenue from sales to external customers and from transactions with other segments is 10% or more of total revenue of all
segments
• the segment result, whether profit or loss, is 10% or more of the combined result of all profitable segments, or the combined results of
all segments that made a loss, whichever is the greater in absolute amount
• its assets are 10% or more of the total assets of all segments.

A segment that does not meet one of the above thresholds in the current reporting period is identified as a reportable segment if it met
one of the above thresholds in the preceding reporting period.

An internally reported segment that is below all of the above thresholds is included as an unallocated reconciling item unless it is
• designated as a reportable segment, or
• combined into a separately reportable segment with one or more other similar internally reported segments that are also below all of
the above thresholds
Where total external revenue attributable to reportable segments is less than 75% of total consolidated or entity revenue, the entity must
identify additional segments as reportable segments, even if they do not meet the 10% thresholds discussed above, until at least 75% of
total consolidated or entity revenue is included in reportable segments.

Where an entity’s internal reporting system treats vertically integrated activities as separate segments and the entity does not report them
externally as business segments, the selling segment shall be combined into the buying segment(s) unless there is no reasonable basis for
doing so, in which case the selling segment is included as an unallocated reconciling item.
AASB 114 Segment Reporting

ACCOUNTING POLICIES
Segment information shall be prepared in accordance with the accounting policies used in preparing and presenting the financial
statements of the consolidated entity. Assets used by two or more segments are only allocated to segments where the related revenues
and expenses are also allocated to those segments.

PRESCRIBED DISCLOSURES
Primary Segment Format Information
Required disclosures for each reportable segment include
• segment revenue from sales to external customers and revenue from transactions with other segments
• segment result
• segment assets and segment liabilities
• costs of acquiring segment assets
• depreciation and amortisation expense of segment assets
• significant non-cash expenses
• information about associates and joint ventures accounted for under the equity method if allocated to a single segment
A reconciliation between the information disclosed for reportable segments and the aggregated information in the consolidated or entity
financial statements must be shown.

Secondary Segment Format Information


Where the entity’s primary format for reporting segment information is business segments, the following secondary segment information
must be disclosed for each geographical segment where the amount is 10% or more of the total entity amount
• segment revenue from external sales by geographical area based on the geographical location of its customers to total entity revenue
from sales to all external customers
• total carrying amount of segments’ assets by geographical location to total assets of all locations
• total costs incurred during the period acquiring segment assets by geographical location of assets, for each geographical segment
whose segment assets are 10% or more of the total assets

Where geographical segments is the primary segment reporting format, the following secondary segment information must be disclosed
for each business segment where segment revenue from external sales is 10% or more of total entity external revenue, or where segment
assets are 10% or more of the total assets of all business segments
• segment revenue from external customers
• total carrying amount of segment assets
• costs of acquiring segment assets that are expected to be used during more than one period

Additional disclosures are required depending on whether the geographical segments are based on location of assets or location of
customers and the two locations differ.

Other Disclosures
Other required disclosures include
• disclosures related to a segment for which information is reported to the key management personnel and the segment is not a
reportable segment because the majority of its sales are to other segments but also earns revenue from sales to external customers
exceeding 10% or more of total entity revenue; both amounts shall be disclosed
• changes in accounting policies adopted for segment reporting
• the types of products and services in each reported business segment and composition of each geographical segment
• the basis of pricing inter-segment transfers and any change in the pricing

IMPORTANT DEFINITIONS
Business segment is a distinguishable component of an entity that is engaged in providing an individual product or service or a group of
related products or services and that is subject to risks and returns that are different from those of other business segments. Factors that
shall be considered in determining whether products and services are related include:
(a) the nature of the products or services;
(b) the nature of the production processes;
(c) the type or class of customer for the products or services;
(d) the methods used to distribute the products or provide the services; and
(e) if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.

Geographical segment is a distinguishable component of an entity that is engaged in providing products or services within a particular
AASB 114 Segment Reporting

economic environment and that is subject to risks and returns that are different from those of components operating in other economic
environments. Factors that shall be considered in identifying geographical segments include:
(a) similarity of economic and political conditions;
(b) relationships between operations in different geographical areas;
(c) proximity of operations;
(d) special risks associated with operations in a particular area;
(e) exchange control regulations; and
(f) the underlying currency risks.

Reportable segment is a business segment or a geographical segment identified based on the foregoing definitions for which segment
information is required to be disclosed by AASB 114.

Segment revenue is revenue reported in the entity’s income statement that is directly attributable to a segment and the relevant portion
of entity revenue that can be allocated on a reasonable basis to a segment, whether from sales to external customers or from transactions
with other segments of the same entity. Segment revenue does not include:
(a) interest or dividend income, including interest earned on advances or loans to other segments, unless the segment’s operations are
primarily of a financial nature; or
(b) gains on sales of investments or gains on extinguishment of debt unless the segment’s operations are primarily of a financial nature.

Segment revenue includes an entity’s share of profits or losses of associates, joint ventures, or other investments accounted for under the
equity method only if those items are included in consolidated or total entity revenue.

Segment expense is expense resulting from the operating activities of a segment that is directly attributable to the segment and the
relevant portion of an expense that can be allocated on a reasonable basis to the segment, including expenses relating to sales to external
customers and expenses relating to transactions with other segments of the same entity. Segment expense does not include:
(a) interest, including interest incurred on advances or loans from other segments, unless the segment’s operations are primarily of a
financial nature;
(b) losses on sales of investments or losses on extinguishment of debt unless the segment’s operations are primarily of a financial nature;
(c) an entity’s share of losses of associates, joint ventures, or other investments accounted for under the equity method;
(d) income tax expense; or
(e) general administrative expenses, head-office expenses, and other expenses that arise at the entity level and relate to the entity as a
whole. However, costs are sometimes incurred at the entity level on behalf of a segment. Such costs are segment expenses if they
relate to the segment’s operating activities and they can be directly attributed or allocated to the segment on a reasonable basis.

For a segment’s operations that are primarily of a financial nature, interest income and interest expense may be reported as a single net
amount for segment reporting purposes only if those items are netted in the consolidated or entity financial statements.

Segment result is segment revenue less segment expense. Segment result is determined before any adjustments for minority interest.

Segment assets are those operating assets that are employed by a segment in its operating activities and that either are directly
attributable to the segment or can be allocated to the segment on a reasonable basis. If a segment’s segment result includes interest
or dividend income, its segment assets include the related receivables, loans, investments, or other income-producing assets. Segment
assets do not include income tax assets. Segment assets include investments accounted for under the equity method only if the profit or
loss from such investments is included in segment revenue. Segment assets are determined after deducting related allowances that are
reported as direct offsets in the entity’s balance sheet.

Segment liabilities are those operating liabilities that result from the operating activities of a segment and that either are directly
attributable to the segment or can be allocated to the segment on a reasonable basis. If a segment’s segment result includes interest
expense, its segment liabilities include the related interest-bearing liabilities. Segment liabilities do not include income tax liabilities.

Segment accounting policies are the accounting policies adopted for preparing and presenting the financial reports of the consolidated
group or entity as well as those accounting policies that relate specifically to segment reporting.

OTHER MATTERS
1. Scope and application
AASB 114 is applicable to general purpose financial reports (GPFR) of reporting entities, including reporting entities required to prepare
financial reports in accordance with Part 2M.3 of the Corporations Act, and any financial reports that are held out to be GPFR.

AASB 114 does not apply to


• not-for-profit entities
• a parent entity when the financial statements of a parent entity are presented with the group’s financial statements. However, the
Standard applies to a parent entity’s segment information where segment information is provided for the parent entity in addition to
AASB 114 Segment Reporting

group segment information

2. Applicable date
The first annual reporting period beginning on or after 1 January 2005. This standard includes amendments mandated by Omnibus
Standards, consequently there are different application dates for the amended paragraphs. For specific details of the amendments, please
refer to the relevant standards.

Legal notice
Copyright © CPA Australia Ltd (CPA Australia) (ABN 64 008 392 452), 2007. All rights reserved. Save and except for third party content, all content in these
materials is owned or licensed by CPA Australia. All trade marks and trade names are proprietary to CPA Australia and must not be downloaded, reproduced or
otherwise used without the express consent of CPA Australia. You may access and display these pages on your computer, monitor or other video display device and
make one printed copy of any whole page or pages for your personal use only.

Acknowledgements
CPA Australia wishes to acknowledge the assistance of the Monash University Centre for Research in Accounting and Finance, in the production of the original set
of fact sheets.

Disclaimer
CPA Australia has used reasonable care and skill in compiling the content of these materials. However, CPA Australia makes no warranty as to the accuracy or
completeness of any information contained therein nor does CPA Australia accept responsibility for any acts or omissions in reliance upon these materials.
This fact sheet is intended to be a guide only and no part of the contents are intended to be advice, whether legal or professional; it is not a complete
representation of the standard and consequently is no substitute for reading the latest and complete standards. All individuals are advised to seek professional
advice to keep abreast of any legal or other reforms and developments.

Limitation of liability
To the extent permitted by applicable law, CPA Australia, its employees, agents and consultants exclude all liability for any loss or damage claims and expenses
including but not limited to legal costs, indirect special or consequential loss or damage (including but not limited to, negligence) arising out of the information in
the materials. Where any law prohibits the exclusion of such liability, CPA Australia limits its liability to the resupply of the information.

This fact sheet series has been developed by CPA Australia Ltd. For further information visit cpaaustralia.com.au
CPA68430 08/2007