CHAPTER 7

Segment Reporting (IFRS8)

&
Interim Reporting (IAS34)

1 AcFN 3151 Ch 7 2/17/21

Learning Objectives
2

At the completion of this chapter, you would be able to:

 State the objectives, and Scope of IFRS 8 & IAS 34
 Define basic terminology used in relation with Segment
& Interim Reporting
 Identify segments for financial reporting purpose
 Show Information to be disclosed by operating
segment
 Define Interim Reporting and explain its importance as
per IAS34
 Disclosure/Note in Interim Financial Data
AcFN 3151 Ch 7 2/17/21
.
OPERATING SEGMENTS
IFRS 8
 IAS 1- FINANCIAL STATEMENT PRESENTATION

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Cont’d …

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02/17/2021
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 IFRS 8 – OBJECTIVE AND SCOPE
Purpose
 Provide external users with a brief/glimpse of how
management views its operations in terms of resource
allocation & performance measurements

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 Present information about the
 Various business &
 Geographical segments of the entity so users can better assess
the risks and returns of each segment
 Ensure that sufficient information is disclosed to allow
users to evaluate
 the nature & financial effects of the entity’s business &
 the economic environment
 IFRS 8: OBJECTIVE & SCOPE
IFRS is not a mandatory standard.
Application

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 Separate as well as consolidated FS of Publicly
trading Companies (Listed Companies).
 Entities that file or are in the process of filing
financial information with a securities regulator

 Private companies may voluntarily adopt

IFRS 8 – OPERATING SEGMENTS: MEANING
Operating segment
 A component of an entity:

(a) That engages in business activities from w/c it may

 earn revenues and

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 incur expenses (including revenues and expenses relating
to Inter-segment transactions),
(b) Whose operating results are regularly reviewed by the
entity’s chief operating decision maker (CODM) to make decisions
about resources to be allocated to the segment & assess its
performance, and
(c) For which discrete/separate financial information is available
 An operating segment may engage in business activities for which it has yet to earn revenues
 E.g., start-up operations may be operating segments before earning revenues
 IFRS 8 – REPORTABLE SEGMENTS – CRITERIA
An operating segment is considered as a reportable segment,
if and only if it meet the following Quantitative
thresholds

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 The entity reports only those operating segments that exceed a
size test
 The following are quantitative thresholds:

1. Reported revenue is equal to or greater

than 10% of the combined revenues of
all operating segments
- Includes intersegment sales
 … QUANTITATIVE THRESHOLD

2. Absolute amount of P/L is 10% or

greater than the higher of the combined
profits or combined Losses

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3. Assets are equal to or greater than 10%
of the combined assets of all operating
segments
If an operating segment meets any one of the
above criteria, it is reportable!!!
 HOW MANY REPORTABLE SEGMENTS
ARE REQUIRED?????
Next steps once managements have
identified the reporting segments

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Assess whether additional segments shall
be reported
The test
If the Total External revenues for the reportable
segments are less than 75% of the entity’s
revenues, the entity identifies additional
reportable segments
 … QUANTITATIVE THRESHOLD

 Oncethe 75% threshold has been met

Entity has identified sufficient reportable
segments

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Rest of the non-reportable segments are
added together under “other operating
segments” & disclosed

 The entity presents comparatives, which include

all reportable segments
 CLASS-WORK
 OIL HORSE, INC. (IMPEX) is a company engaged in
upstream and downstream oil and gas operations.

02/17/2021
 It has been defining its operating segments as upstream,
downstream, chemicals and financing.
 Due to the size of each segment, they all met the quantitative
threshold for definition of reportable operating segment.
 Subsequent to a recent management protest, the company
modified its management reporting framework and it now
looks at its operations from a geographical point of view.
Required: Using the following information, identify which of the
operating segments are required to be reported separately.
 All amounts are in billion CUs

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 A B E M N V Total

02/17/2021
Revenue 22 10 24 32 10 4 102

Profit/(loss) 3.2 -0.5 4 7 -1.3 -0.3 12.1

Assets 34 12 28 40 20 12 146

Required: Identify Reportable segments 17

 SOLUTION
 Identification of reportable segments requires calculation of
each segment's percentage revenue, profit and assets with

02/17/2021
reference to the sum of revenue, profit and assets respectively.
 Calculation of percentage revenue and percentage assets is
quite straightforward:
 divide each segment's revenue/assets by total
revenue/assets.
 Percentage profit/(loss) however, is tricky.
 It is calculated by dividing each profit/(loss) figure by 14.2
billion, which is the greater of
a) (a) all profits i.e. (3.2+4+7=14.2 billion) and
b) all losses (i.e. 0.5+1.3+0.3=2.1 billion). 18
 A B E M N V

02/17/2021
Revenue
21.57% 9.80% 23.53% 31.37% 9.80% 3.92%
%
Profit % 22.54% 3.52% 28.17% 49.30% 9.15% 2.11%
Assets % 23.3% 8.2% 19.2% 27.4% 13.7% 8.2%
Reportabl
e Yes No Yes Yes Yes No

segment

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IFRS 8 – REPORTABLE
SEGMENTS

Aggregation criteria
 Where two or more operating segments have similar

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economic characteristics, they may be combined for
reporting purposes
 The entity reviews certain aspects when making this
assessment:
• Nature of products/services
• Nature of the production processes
• Type of customer
• Distribution methods
• Nature of the regulatory environment
 CLASS-WORK
ABC Inc. is in the R&D business. It operates in the U.S. only, &
the research and development division accounts for about 60%
of its combined revenues.
There are a number of small divisions, each of which has very

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few assets and contributes between 4% and 5% of combined
revenues.
The following is a list of what each division does:
Division 1 – produces generic drugs
Division 2 – does website development
Division 3 – manufactures medical equipment
Division 4 – runs a small medical center
Instructions
Discuss whether these divisions should be presented as
operating segments.
 IFRS 8 – DISCLOSURE
 The entity should present the following categories of
information:
• General information
• Information about the reported segment’s P/L, assets

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and liabilities, & bases of measurement
• Reconciliations of segment revenues to reported
revenues
General information
 The following general disclosures are required:

• Factors used to identify the reportable segments

• Types of products/services
 IFRS 8 – DISCLOSURE
Information about P/L, and assets/liabilities
 Must present the amount of P/L and total assets for each
reportable segment
 Information is disclosed where it is regularly presented to the

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CODM as follows:
• liabilities
• revenues (external and intersegment)
• depreciation and amortization
• material items of income and expense
• income tax expense income
• material non-cash items other than depn & amortization
• inv’t in associates/JV accounted for by the equity method
• additions to non-current assets
 IFRS 8 – MEASUREMENT
 Numbers should be measured the way they are measured for
presentation to CODM
 To understand how these numbers are put together, the ff is relevant
& should therefore be disclosed:

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• Basis of accounting for intersegment transactions
• Nature of any differences:
b/n the segment P/L & the entity P/L
b/n the segment A/L & the entity A/L
• Nature of any changes from prior periods
• Nature and effect of asymmetrical allocations to reportable
segments
IFRS 8 – MEASUREMENT
Reconciliations
 Most users focus on the consolidated numbers

 Required reconciliations b/n reportable segments & FS

numbers:

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• Revenues
• Profit and loss
• Assets
• Liabilities (if liabilities are presented for the segments)
• Any other material segments amounts presented
 The entity should identify and describe material reconciling
items
 IFRS 8 – ENTITY-WIDE DISCLOSURES
 The basics
 Info is developed unless the costs to produce it are
excessive or the information is not available
 Would be based on information used to produce the
entity’s FS
 The ff are required to be disclosed by all entities :
 Information about products and services
 Information about geographical areas
 Information about major customers

• Information about products and services

• External revenues by product/service (or group)
INTERIM FINANCIAL
REPORTING

IAS 34
 IAS 34:OBJECTIVE

Objective:
 IAS 34 prescribes minimum content of an interim financial

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report & the principles for recognition & measurement in
complete or condensed FS for an interim period.
 Annual reporting
 Often supplemented with interim or quarterly reports
 Interim reporting
 Reports provide more relevant and timely information
IAS 34: SCOPE……

 The IASB encourages publicly traded entities to provide

interim financial reports that conform to the recognition,
measurement, and disclosure principles set out in this
Standard. Specifically, publicly traded entities are
encouraged:
 (a) to provide interim financial reports at least as of the
end of the first half of their financial year; and
 (b) to make their interim financial reports available not
later than 60 days after the end of the interim period.
DEFINITION OF TERMS
 Interim period: is a financial reporting period
shorter than a full financial year.
 Interim financial report: a financial report containing
either a
complete set of FS (as described in IAS 1)
or
a set of condensed FS (as described in this Standard) for
an interim period.
 CHOICE BY THE ENTITY
May choose not to prepare interim FS at all
IF you choose to prepare them in accordance with
IFRSs

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IAS34 applies!!!

 Definition: . . . a financial report containing either a

complete set of FS or a set of condensed FS for an
interim period
 IAS 34 – CONTENT OF AN INTERIM FINANCIAL
REPORT

Goal of interim reporting

To provide info about new events &

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circumstances and other changes
Not just replicate the information given in the
annual FS
 The standard does not prohibit including a complete set of FS
IAS 34 – CONTENT …

 Minimum requirements mandated by IAS

34:
Minimum components of an interim financial
report
Form and content of interim FS
Selected explanatory notes
Disclosure of compliance with IFRSs
Periods for which interim FS are required to be
presented
Materiality
 IAS 34 – CONTENT OF AN INTERIM FINANCIAL
REPORT
1. Minimum components
 Required condensed statements
• Statement of financial position

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• Statement of P/L & Other Comprehensive Income
-Presented as a single statement or a separate statement of P/L
plus a Statement of OCI
• Statement of changes in equity
• Statement of cash flows

NB: Condensed FS shall include at minimum each of the headings &

subtotals that were included in the most recent annual FS.

 In addition, selected explanatory notes must accompany the above

IAS 34 – CONTENT OF AN INTERIM FINANCIAL
REPORT

2. Form and content of interim FS

 If the entity presents a Complete set of statements
 Follow IAS 1 (presentation of FS)
 If it presents condensed statements

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 Entity must present at a minimum the headings & subtotals that
were presented in the annual FS.
 Basic and diluted EPS
 Presented when the entity is covered by IAS 33
 Interim FS (Consolidation)
 Based on Consolidated FS where the most recent annual
St. were prepared on a consolidated basis
 Additional Separate FS is a choice
IAS 34 – CONTENT OF AN INTERIM FIN. REPORT
3. Selected explanatory notes
 Relevant notes unchanged from the annual report
 Not included
 Repetitive and Can obscure the new & more relevant info

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 Information is normally presented on a year-to-date basis
 Material disclosures

• Statement that the accounting policies follows the annual report

• Explanatory comments about the seasonality of the business
• Any unusual items
• Nature and amount of changes in estimates
 IAS 34 – CONTENT OF AN INTERIM FINANCIAL
REPORT
(continued list)
• Changes in debt and equity securities (issue, repurchase, repayment)
• Dividends paid
• Segmented information including (IFRS8)

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 Intersegment revenues

 Segment profit/loss

• Material subsequent non-adjusting events (IAS10)

• Changes in contingent assets/liabilities

Disclosure of compliance with IFRSs

 If the FS are prepared in compliance with IFRSs, this should be
stated and the interim statements must also be in compliance with all
IFRSs
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 IAS 34 – CONTENT OF AN INTERIM FINANCIAL
REPORT
4. Materiality
 Discussed in IAS 1 and 8
 Although there is no specific quantitative guidance

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 IAS 34 notes that materiality for interim statements should
be assessed based on the interim period

 Note that interim FS may have additional estimates

 Therefore the numbers may be a bit softer
IAS 34 – RECOGNITION AND MEASUREMENT

Same accounting policies as annual

 Entity is required to use the same accounting policies as in the year-end
statements

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 Encourages consistency
 Where there has been a subsequent change in accounting policies,
the entity would use the newer policy

Discrete versus integral

 The discrete approach


Interim period as a separate and self-standing period


The integral approach

Interim report as part of the annual period (i.e., as a portion of a larger period)
IAS 34 – RECOGNITION AND
MEASUREMENT
Revenues received seasonally, or occasionally
 Recognized when they occur or are earned, notwithstanding their
cyclical or seasonal nature
 May result in more revenues being recognized in one period than in

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another
 Reflects the underlying reality

Costs incurred unevenly during the financial year

 Costs are recognized when incurred
 Only capitalized when they meet the definition of an asset
 NB: Such Treatment of Revenue & Expenses; Supports
the discrete approach
EXAMPLE: RECOGNITION OF COSTS
EX1:

02/17/2021
Your PLC is retraining its entire staff to bring them up to
speed with IFRSs. The costs are substantial & are incurred
in the 1st quarter. It would like to spread the costs over the
year since they will benefit the entire year.

RQD: Assuming that the entity prepares 1st quarter

statements, discuss the Issues.

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IAS 34 – RESTATEMENT OF PREVIOUSLY
REPORTED INTERIM PERIODS

 Wherethere is a change in accounting policy, the

comparative interim information must be restated

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 Where it is impracticable to determine the
cummulative impact, the change would be applied
from the earliest date practicable
 Thank You!
End of the Chapter
End of the Course as well

Wish You Good

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