IFRS 8 Operating segments - EY

1 ifrs 8 Operating segments Implementation guidance Contents Introduction 2. Section 1 4. ifrs 8 and IAS 14: The key differences Section 2 6. Application of the requirements of ifrs 8. Section 3 16. Illustrative example Section 4 25. Frequently asked questions This publication is intended to assist readers in understanding the requirements of and does not attempt to explain all of the requirements of ifrs 8. In case of doubt as to the requirements, it is essential to refer to the relevant paragraph of ifrs 8 and, when necessary, to seek appropriate professional advice.

2 ifrs 8 Operating segments Implementation guidance 1. Introduction Overview Background This publication provides information ifrs 8 differs from its predecessor segment reporting was identified as about the requirements of the newly because it introduces a management part of the International Accounting issued ifrs 8 Operating segments , reporting approach to identifying and Standards Board's (IASB or Board) short- which becomes effective for annual measuring the results of reportable term project to reduce the differences reporting periods beginning on or after Operating segments .

3 As the measurement between International Financial Reporting 1 January 2009. It has been designed of the segment results reported is no Standards and US GAAP. In January 2005. to help those responsible for preparing longer dictated by the measurement the IASB decided the best way to achieve ifrs -based financial statements apply and and recognition criteria of financial convergence in relation to segment understand the new requirements. reporting standards, reconciliations reporting was to adopt the approach are required where information being of the equivalent US standard (SFAS.)

4 Our commentary and analysis of the presented to management differs from 131: Disclosures about segments of an Standard is divided into four sections: ifrs information in the primary financial Enterprise and Related Information). Section 1: Provides an analysis of statements. Some entities may need to As a result ED 8 Operating segments the key differences between the develop new processes in order to address was issued in January 2006, and the requirements of ifrs 8 and the these reconciliation requirements. final Standard, ifrs 8, was released in standard it will replace, IAS 14 November 2006.

5 ifrs 8 will replace As entities manage their businesses segment Reporting. IAS 14 for reporting periods beginning in different ways, segment reporting Section 2: Explains how to identify disclosures made by similar-sized entities on or after 1 January 2009. However, reportable Operating segments , using comparative information is required in similar industries are unlikely to be flowcharts to highlight the decisions when ifrs 8 becomes effective, which directly comparable. Our publication, that need to be made. It also contains a means that entities need to capture Observations on the Implementation of number of examples to illustrate what ifrs 8 segment information from ifrs , indicated that there was diversity in is intended by the Standard.

6 1 January 2008. the way entities reported their segments Section 3: Provides an illustration of using IAS 14. Disclosures may be even The IASB believes that financial reporting the disclosures required by ifrs 8, less comparable when ifrs 8 comes will improve because the management with commentary highlighting when into effect. approach to the reporting of segments the disclosures may differ from those allows users of financial statements to required by IAS 14. The disclosure requirements in ifrs 8 are examine an entity's operations through extensive, and we encourage all entities Section 4: Answers some frequently the eyes of management.

7 An important asked questions (FAQs) about the to study the Standard carefully well ahead application of ifrs 8. of its adoption. 2 ifrs 8 Operating segments Implementation guidance aspect of ifrs 8 is the requirement to disclose information that is actually being used internally by management. The IASB. maintains that, because the segment information required to be disclosed will be readily available, it should help entities save time and money. Although adopting the management approach does have benefits, in commenting on ED 8, some, including Ernst & Young, argued that it is inferior to IAS 14 because segment information does not have to be reported on the same basis as the financial statements (using ifrs ) and that key terms such as segment revenue' and segment assets'.

8 Are not defined. To counter this criticism the final Standard requires increased disclosure regarding the basis on which the information has been prepared. Overall, the IASB believes the benefits of the management approach, together with some expanded disclosure, will outweigh the lack of comparability that might arise, which is why the decision to adopt the US. GAAP approach was made. ifrs 8 Operating segments Implementation guidance 3. Section 1. ifrs 8 and IAS 14: The key differences The key differences between ifrs 8 and Identification of segments IAS 14 in identifying and measuring reportable segments are outlined ifrs 8 adopts the management Operating segments have been below and are followed by a summary reporting approach to identifying identified, the entity must determine of the disclosures required by the Operating segments .

9 It is likely that in which of these Operating segments are new Standard. many cases, the structure of Operating reportable. If a segment is reportable, segments will be the same under then it must be separately disclosed. ifrs 8 as under IAS 14, because IAS This approach is the same as that 14, like ifrs 8, defines reporting required by IAS 14 except that it does segments as the organisational units not require the entity to determine a for which information is reported to primary' and a secondary' basis of key management personnel for the segment reporting. purpose of performance assessment Under ifrs 8, for the purpose of and future resource allocation.

10 When identifying reportable segments , no an entity's internal structure and distinction is made between revenues management reporting system are not and expenses relating to transactions based either on product lines or on with third parties and revenues and geography, IAS 14 requires the entity expenses relating to transactions with to choose one as its primary segment other parts of the group. This means reporting format. ifrs 8, however, that vertically integrated operations does not impose this requirement may be composed of several segments to report segment information on a for the purpose of ifrs 8.