OPERATING
SEGMENTS
Noel A. Bergonia, CPA, MBA
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Core Principle
• The Standard governing Operating Segments is IFRS 8.
• An entity is required to disclose information to enable users of its financial statements to evaluate the
nature and financial effects of the types of business activities in which it engages and the economic
environments in which it operates
Noel A. Bergonia, CPA, MBA
Scope
• IFRS 8 applies to the separate or individual financial statements of an entity (and to the consolidated financial
statements of a group with a parent):
✓whose debt or equity instrument are traded in a public market, or
✓that files, or is in the process of filling, its (consolidated) financial statements with a securities commission
or other regulatory organization for the purpose of issuing any class of instruments in a public market.
•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.
Noel A. Bergonia, CPA, MBA
Operating Segments
• An operating segment is a component of an entity:
✓that engages business activities from which it may earn revenues and incur expenses,
✓whose operating results are reviewed regularly by the entity’s chief operating decision maker to
make decisions about resources to be allocated to the segment and assess its performance, and
✓for which discrete financial information is available.
•A component is not excluded from being an operating segment even if its sole purpose is to sell products
or services internally to other components of the enterprise.
•Reportable segment is an operating segment for which segment information is required to be disclosed.
Noel A. Bergonia, CPA, MBA
Chief Operating Decision Maker
• CODM’s function is to
✓Allocate resources
✓Assess the performance of the operating segments of the entity
✓Often, he is chief executive officer or chief operating officer
Noel A. Bergonia, CPA, MBA
Operating Segments
• 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 chief operating decision maker may also be the segment manager for some operating segments.
• A single manager may be the segment manager for more than one operating segment.
Noel A. Bergonia, CPA, MBA
Aggregation of Two or More Operating
Segments into One
• Two or more operating segments may be aggregated into a single operating segment if:
✓Aggregation is consistent with the core principle of IFRS 8;
✓the segments have similar economic characteristics; and
✓the segments are similar in each of the following respects:
▪ the nature of the products and services;
▪ the nature of the production processes;
▪ the type or class of customer for their products and services;
▪ the methods used to distribute their products or provide their services; and
▪ if applicable, the nature of the regulatory environment (e.g. banking, insurance, or public utilities).
Noel A. Bergonia, CPA, MBA
Identifying Reportable Segments
• IFRS 8 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:
✓ Its reported revenue, including both sales to external customers and intersegment sales or transfers, is
10% or more of the combined revenue, internal and external, of all operating segments.
✓the absolute measure of its reported profit or loss is 10% or more of the greater, in absolute amount, of
(i) the combined reported profit of all operating segments that did not report a loss and
(ii) the combined reported loss of all operating segments that reported a loss, or
✓its assets are 10% or more of the combined assets of all operating segments.
Noel A. Bergonia, CPA, MBA
Identifying Reportable 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 (IFRS 8 par. 13).
• 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 (IFRS 8 par. 14).
Noel A. Bergonia, CPA, MBA
Identifying Reportable Segments
• If the total external revenue reported by operating segments constitutes less than 75% of the entity’s
revenue, additional operating segments shall be identified as reportable segments until at least 75% of the
entity’s revenue is included in reportable segments (IFRS 8 par. 15).
Noel A. Bergonia, CPA, MBA
Example
BT21 Company operates in different geographical area since 2019. The
following information pertains to BT21 Company’s operation in 2020. 40M
Segment Identifiable External Internal Total Profit/
Assets revenues revenues Revenues (Loss)
Reportable segment
RJ 20M 50M 10M 60M 16M
Reportable segment Tata 8M 16M 4M 20M (6M)
Cooky 8M 12M 2M 14M 2M
Reportable segment Chimmy 40M 10M 16M 26M (8M)
14M
Reportable segment Mang 22M 44M 8M 52M 22M
Total 98M 132M 40M 172M
• Identifiable assets are at least (98M x 10%) = 9.8M
•Total revenues are at least (172M x 10%)= 17.2M 120M
• Operating results (whether profit or loss: 40M x 10%) = 4M
•Total revenues from external sources (120M÷ 132M) = 91%
Noel A. Bergonia, CPA, MBA
Disclosure
• 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.
Noel A. Bergonia, CPA, MBA
Required Disclosures
An entity shall disclose the following for each period for which a statement of comprehensive income is
presented:
• general information;
• 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; and
• 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.
Noel A. Bergonia, CPA, MBA
General Information
An entity shall disclose the following general information:
• factors used to identify the entity’s reportable segments, including the basis of organization;
• the judgements made by management in applying the aggregation criteria; and
• types of products and services from which each reportable segment derives its revenues.
Noel A. Bergonia, CPA, MBA
Example:
Disclosure for General Information
Globe Telecom, Inc.
Audited Financial Statements as of
12/31/2019
https://www.pds.com.ph/wp-content/uploads/2020/02/Disclosure-No.-543-2020-Audited-Financial-Statements-as-of-December-31-2019.pdf Noel A. Bergonia, CPA, MBA
Information about reported segment
profit or loss
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:
• revenues from external customers
• revenues from transactions with other operating segments of the same entity
• interest revenue
• interest expense
• depreciation and amortization
• material items of income and expense
• the entity’s interest in the profit or loss of associates and joint ventures accounted for by the equity method
• income tax expense or income
• material non-cash items other than depreciation and amortization
Noel A. Bergonia, CPA, MBA
Example:
Information about reported segment profit or loss
https://www.pds.com.ph/wp-content/uploads/2020/02/Disclosure-No.-543-2020-Audited-Financial-Statements-as-of-December-31-2019.pdf
Reconciliations
An entity shall provide reconciliations of all of the following:
• the total of the reportable segments’ revenues to the entity’s revenue
• 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.
• the total of the reportable segments’ assets to the entity’s assets
• the total of the reportable segments’ liabilities to the entity’s liabilities
• the total of the reportable segments’ amounts for every other material item of information disclosed to
the corresponding amount for the entity.
Noel A. Bergonia, CPA, MBA
Example: Reconciliation
Noel A. Bergonia, CPA, MBA https://www.pds.com.ph/wp-content/uploads/2020/02/Disclosure-No.-543-2020-Audited-Financial-Statements-as-of-December-31-2019.pdf
Example: Reconciliation
Noel A. Bergonia, CPA, MBA https://www.pds.com.ph/wp-content/uploads/2020/02/Disclosure-No.-543-2020-Audited-Financial-Statements-as-of-December-31-2019.pdf
Example:
Reconciliation
PLDT Inc.
Audited Financial Statements
As of December 31, 2019
Noel A. Bergonia, CPA, MBA http://pldt.com/docs/default-source/annual-reports/2019/financial-section2019.pdf?sfvrsn=0
Restatement of previously reported
information
• If an entity changes the structure of its internal organization 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.
Noel A. Bergonia, CPA, MBA
Entity-wide disclosures
An entity shall disclose information about the following:
• Information about products and services
• Information about geographical areas
• Information about major customers
Noel A. Bergonia, CPA, MBA
Example of Entity-Wide Disclosures:
Information about Products and Services
Noel A. Bergonia, CPA, MBA
https://www.pds.com.ph/wp-content/uploads/2020/02/Disclosure-No.-543-2020-Audited-Financial-Statements-as-of-December-31-2019.pdf
Example of Entity-Wide Disclosures:
Information about geographical areas
Noel A. Bergonia, CPA, MBA
https://www.pds.com.ph/wp-content/uploads/2020/02/Disclosure-No.-543-2020-Audited-Financial-Statements-as-of-December-31-2019.pdf
Example of Entity-Wide Disclosures:
Information about major customers
Noel A. Bergonia, CPA, MBA
https://www.pds.com.ph/wp-content/uploads/2020/02/Disclosure-No.-543-2020-Audited-Financial-Statements-as-of-December-31-2019.pdf
Noel A. Bergonia, CPA, MBA
