PFRS 8-OPERATING SEGMENTS

OVERVIEW OF PFRS 8

Issued: in 2006; followed by amendments

Effective date: 1 January 2009
WHAT IT DOES:

 It prescribes the information that an entity must disclose about its:

 Operating segments;
 Products and services;
 Geographical areas in which it operates; and
 Its major customers.

 It defines operating segments;

 It prescribes the conditions for the segments to be reportable.
The required disclosures under PFRS 8 aim to help
users of financial statements.
 Better understand the entity’s performance.
 Better assess the entity’s prospects for future net cash
flows.
 Make more informed judgments about the entity as a
whole.
MAIN RULES OF PFRS 8

Definition of operating segment

 Operating segment is a component of an entity:
 that engages in business activities from which it may earn
revenues and incur expenses (including internal revenues with
other segments of the same entity);
 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.
WHO MUST APPLY PFRS 8?

Each entity:
 This applies to both individual (separate) financial statements and
consolidated financial statements,
 whose debt or equity instruments are traded in a public market; or
 that files, or is in the process of filing, its financial statements with a
securities commission or other regulatory organisation for the purpose
of trading its instruments on a public market.
REMEMBER!

Not every part of an entity is necessarily as

operating segment. To qualify as an operating
segment, one must be a profit center, used
internally by management for decision making,
and on which separate financial information is
available.
WHICH SEGMENTS MUST BE REPORTED (ARE
REPORTABLE)?

Is used by management in internal

reporting or results from aggregating
two or more segments; and
Qualifies under the quantitative
thresholds
MANAGEMENT APPROACH

 PFRS 8 adopts management approach to identify 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.
 Basically, the decision on whether an operating segment is
reportable or not is based on management’s judgment.
Operating segments used by management for internal reporting
are also operating segments used for external reporting.
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, the segments have similar economic characteristics, and the
segments are similar in each of the following respects:
 Nature of the products and services;
 Nature of the production processes;
 Type or class of customer for their products and services;
 The methods used to distribute their products or provide their
services; and
 Nature of the regulatory environment, if applicable, e.g., banking,
insurance or public utilities.
QUANTITATIVE THRESHOLD

An operating segment is reportable if it meets any of the following:

 Its revenue, including both external and intersegment sales, is 10%
or more of the total revenue, external and internal, of all operating
segments.
 Its profit or loss is 10% or more of the greater, in absolute amount,
of the:
 Total profit of all operating segments that reported a profit; and
 Total loss of all operating segments that reported a loss.
 Its assets are 10% or more of the total assets of all operating
segments.
REPORTING OF NON-REPORTABLE SEGMENTS

Operating segments that are not

reportable are combined and disclosed in
an “all other segments” category.
LIMIT ON EXTERNAL REVENUE

If the total external revenues of the identified

reportable segments are less than 75% of the entity’s
total external revenue, additional operating
segments are included as reportable, even if they do
not meet the quantitative threshold, until at least
75% of the entity’s external revenue is included in
reportable segments.
REPORTING OD INTEREST REVENUE AND INTEREST EXPENSE

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. In such case, the entity may report the
segment’s interest revenue net of interest expense
and disclose that fact.
WHAT INFORMATION TO DISCLOSE?

Once the segment has been identified as reportable,

the entity must disclose the following information:
General information:
 Factors used to identify reportable operating segments;
 Judgements used in applying the aggregation criteria;
 Types of products and services generating revenues.
WHAT INFORMATION TO DISCLOSE?

 Information about profit or loss, assets and liabilities

 Measurement of these amounts shall be on the same basis as
reported to chief operating decision maker;
 On top of the total amounts of profit or loss, assets and liabilities,
the entity shall present the information about specified revenues
and expenses (revenues from external customers, internal revenues,
depreciation and others);
 Entity should provide the explanation of the measurement basis,
including the explanation of nature of differences between the
amounts reported per segments and total entity's amounts
WHAT INFORMATION TO DISCLOSE?

 Reconciliations
The entity should reconcile total amount per operating
segments with total amount reported in the entity's financial
statements for:
 Revenues;
 Profit or loss;
 Assets;
 Liabilities;
 Other material information.
WHAT INFORMATION TO DISCLOSE?

Entity-wide information
 Information about products and services;
 Information about geographical areas, namely:
 Revenues from external customers (in the country of domicile and
in foreign countries;
 Certain non-current assets(in the country of domicile and in
foreign countries;
 Information about major customers
THANK YOU!!!