PFRS 8 OPERATING SEGMENTS

I. NATURE
Diversification of operations, either by engaging in different business activities or doing
business in different business activities or doing business in different geographical
areas, creates operating segments.
Core principle
The required disclosures under PFRS 8 aim to help users of financial statements
a. Better understand the entity’s performance
b. Better assess the entity’s prospects for future net cash flows
c. Make more informed judgments about the entity as a whole
Scope
PFRS 8 applies to the separate or individual financial statements of an entity, and to the
consolidated financial statements of a group with a parent, that is publicly listed or in
the process of enlisting.
If a financial report contains both consolidated and separate financial statements,
segment information is required only in the consolidated financial statements.
Non-publicly listed entities are not required to disclose segment information. However, if
they choose to do so, they will need to apply PFRS 8.

II. RECOGNITION
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.
c. For which discrete financial information is available.

Start-up operation can be an operating segment even if it has yet to earn revenues.

Reportable segments
An operating segment is reportable (i.e., disclosed separately) if it:
a. Is used by management in internal reporting or results from aggregating two or
more segments
b. Qualifies under the quantitative thresholds
III. MEASUREMENT
PFRS 8 adopts the management approach to identifying reportable segments. Under
this approach, operating segments are identified 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.
Aggregation criteria
Two or more operating segments may be aggregated into a single operating segment if
aggregation is consistent with the core principle of PFRS 8, segments have similar
economic characteristics, and the segments are similar in each of the following
respects:
a. Nature of the products and services
b. Nature of the production processes
c. Type or class of customer for their products and services
d. The methods used to distribute their products or provide their services
e. Nature of the regulatory environment, if applicable, e.g. banking, insurance, or
public utilities

IV. PRESENTATION
Interest revenue and interest expense are reported separately for each reportable
segment unless the segment’s revenue is primarily from interest and internal decision-
making is based on net interest revenue.

V. DISCLOSURE
PFRS 8 requires an entity to disclose information needed in evaluating the nature and
financial effects of the business activities in which it engages and the economic
environments in which it operates.

Operating segments that are not reportable are combined and disclosed in an “all
other segments” category.
An entity discloses the extent of its reliance on its major customers.