Segment reporting in accordance with IFRS 8 will be mandatory for annual financial statements covering periods beginning on or after 1 January 2009. The standards replaces IAS 14, Segment Reporting, from that date.The objective of IFRS 8 is to require: operating segments, reporting of financial information, reportable segments,chief operating decision maker (CODM

BOCHIS LEONICA

BREBAN LUDOVICA

DUMBRAVA PARTENIE

Sucala Lucia

English

Research Papers in Economics

931 
 
IFRS 8 – OPERATING SEGMENTS 
 
Dumbrava Partenie 
Universitatea  “Babes-Bolyai”  Cluj-Napoca  Str.  Horea,  nr.7,  Cluj-Napoca  e 
mail:dumbrava@tbs.ubbcluj.ro tel. 0741094150 
Sucala Lucia 
Universitatea “Babes-Bolyai” Cluj-Napoca e-mail: lsucala@yahoo.com 
Bochis Leonica 
CECCAR-Filiala Bihor e-mail:bochisleonica@yahoo.com tel. 0788300557 tel. 0745514750 
Breban Ludovica 
Universitatea de Vest Vasile Goldis Arad B-dul M.Viteazu, nr. 57,bl.T2, sc.C, ap.13, Municipiul 
Zalau, jud. Salaj e-mail: ludovicabreban@yahoo.com tel: 0723302136 
 
Segment reporting in accordance with IFRS 8 will be mandatory for annual financial statements covering 
periods beginning on or after 1 January 2009. The standards replaces IAS 14, Segment Reporting, from 
that date. 
The  objective  of  IFRS  8  is  to  require  public  companies  to  disclose  information  about  their  business 
activities  and  the  economic  environments  in  which  they  operate  on  the  same  basis  as  it  is  used  by 
management  to  make  decisions  about  the  allocation  of  the  company‟s  resources  and  to  assess  the 
performance of the business. 
The standard has been endorsed for use in the European Union; other jurisdictions may have similar legal 
constraints on the use of new IASB standards (these are not discussed here). 
 
Keywords: operating segments, reporting of  financial information, reportable segments,chief operating 
decision maker (CODM)  
 
Cod JEL:  M41 
 
Summary of main differences between IFRS 8 and IAS 14 
The table below analyses the main differences between IFRS 8 Operating Segments and IAS 14 
Segement Reposting, in terms of the identification of segments, the measurement of segment 
information, and disclosures 
 
IFRS 8  IAS 14 
Identification of segments  Identification of segments 
Operating  segments  are  identified  based  on 
the internal reporting of financial information 
to the chief operating decision maker. 
Operating  segments  can  include  those  that 
sell exclusively to internal customers. 
 
Primary and secondary segments are identified 
based on the dominant source and nature of an 
entitiy
‘s  risk  and  return,  which   are  either 
products/services, or geographical areas. 
Repostable  segments  are  only  those   that 
generate a majority of revenues from external 
sales. 
Measurement of segment information  Measurement of segment information 
Operating segments are measured as reported 
to management. 
Requires  explanations  on  how  disclosure 
items were measured. 
Segmental  information  is  disclosed  in 
accordance  with  the  group
‘s  accounting 
policies. 
Defines how to measure disclosure items, such 
as  segment  revenue  and  expenses,  segment 
asset and liabilities. 
Disclosures  Disclosures 
Requires  disclosure  about  factors  used  to  No similar requirement. 932 
 
identify  the  operating  segments  and 
explanations  on  the  types  of  products  or 
services from which the reportable segment 
derives its revenues. 
Disclosure  of  much  of  the  segmental 
information  is  reviewed  by  the  chief 
operating decision maker. 
Disclosure of interest income and expense is 
required,  unless  net  interest  is  used  by 
management as basis for decision making. 
All entities have to provide  
some geographical  
information  and  certain  major  customer 
details. 
 
 
 
 
 
 
Disclosure of certain segmental information is 
mandatory. 
 
No similar requirement 
 
 
 
 No  entity-wide  disclosure  requirements, 
although some secondary reporting segment 
 disclosures 
 are mandated. 
 
Scope 
 
Not all entities are required to disclose segment information in accordance with IFRS 8. IFRS 8 
applies  to  entities  that  are  public  or  are  in  the  process  of  going  public.  If  the  listed  parent 
company  financial  statements  are  presented  together  with  a  group
‘s  financial  statements,  no 
separate segmental information is required for the parent. 
The  questions  and  answers  below  clarify  which  entities  are  required  to  present  segment 
information, and the requirements for companies who choose to present segment information 
even when not required to do so by the standard. 
Are segment disclosures only required in the consolidated financial statements of a group? 
Paragraph 2 of IFRS 8 , no, an entity whose debt or equity instruments are traded in a public 
market is required to present segment desclosures in its individual financial statements. Segment 
information is also required in the consolidated financial statements of a group, when the parent
‘s 
debt  or  equity  instruments  are  traded  in  a  public  market.  If  the  parent
‘s  individual  financial 
statements are presented together with the group
‘s consolidated financial statements, separate 
segmental disclosures for the parent are not required. 
Is an entity whose securities are not yet listed, but which contemplates a public offering of its 
debt or equity securities in the future, required to provide disclosures under IFRS 8? 
Only entities or groups which file or are in the process of filing their individual or the group
‘s 
financial statements with a regulatory body for the purpose of issuing to the public debt or equity 
instruments would need tom comply with IFRS 8. 
Can an entity that is not under the scope of IFRS 8 report segmental information? 
Entities outside the scope will not need to comply with IFRS 8  – but may choose to do so. 
Information about segments that is produced on a voluntary basis but that is not compliant with 
IFRS 8 cannot be described as segment information. 
 
Operating segments 
Operating segments are basis of the reportable segments disclosed in the financil statements. This 
section  also  highlights  the  importance  of  the  concept  of  the  chief  operating  decision  maker 
(CODM) for the identification of operating segments. An operating segment is defined in IFRS 8 
as a component of an entity: 
  - 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); 933 
 
  - whose operating results are regularly reviewed by the entity
,s CODM to make decision 
about resources to be allocated to the segment and assess its performance, and, 
for which discrete financial information is available. 
IFRS  8  indicates  that  a  component  should    have  its  own  revenue  streams  as  well  as  incur 
expenses. Corporate division which earn no or only incidental revenues would not be operating  
segements, such as head office cost centres. 
The CODM is not meant to be title, but identifies a function. The CODM allocates the resources 
to and assesses the performance of the operating segments of the entity or the group. The CODM 
would generally be the most senior level of management in the entity, such as the chief executive 
officer, chief operating officer or a group of executive officers, such as the board. 
In the UK, the CODM will often be the board of directors collectively, but could be a sub-est of 
the board or an individual. 
If multiple sets of segment data are reviewed by the CODM, factors such as the nature of the 
business activities of the components, the existence of managers allocated to the components or 
the basis of the presentation of the information to the board should be considered to determine 
what the operating segments are. If none of these provides a conclusive answer, the analysis of 
segments that provides the most useful information in respect of the nature and financial effects 
of the business activities should be the basis for identification of the operating segments. 
Under IAS 14 the primary reporting segment format is identified based on an entity
‘s internal 
organisational and management structure and its system of internal financial reporting to key n 
management personnel. The primary reporting segment is either based on product/services or 
geographical areas. Under IFRS 8 the operating segments are identified based on the reporting of 
divisional results to the CODM. The principles of identification under IAS 14 and IFRS 8 are 
thus similar, but an analysis to determine the operating segments under IFRS 8 is still required, 
and these may well be different from the IAS 14 segments. 
Reportable segments 
Operating segments are identified based on the  internal reporting of financial information to the      
CODM. Reportable segments are those actually disclosed in the financial statements. Operating      
and reportable segments are not always identical. The following questions and answers look at      
when  operating  segments  can  be  aggregated  or  combined  for  reporting  in  the  financial     
statements. The question is, when may operating segments be aggregated?  
Two or more operating segments may be aggregated if certain conditions are met: 
  - The segment have similar economic characteristics, such as similar long-term  average 
gross margins; 
  -  Aggregation  allows  the  users  of  financial  statements  to  evaluate  the  nature  and 
  financial effects of the business activities;  
  - and 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,  for  example,  banking, 
insurance or public utilities. The fact that   operating segments have been aggregated should 
be disclosed. Operating segment   information  needs  to  be  disclosed  separately  for  each 
operating segment, including   each  aggregated  operating  segment,  if  they  exceed  certain 
quantitative thresholds. 
However an entity should ensure that all operating segments have been appropriately identified 
and  the  aggregation  criteria  have  been  met.  The  entity-wide  disclosures,  in  accordance  with 
paragraphs 32 to 34 of IFRS 8, are still required. It is important to ensure that the segments 
selected for reporting purposes are consistent with other reported information included in the 
annual  report  such  as KIPs.  Differences  between  narrative reporting  and  segmental  financial 
reporting may confuse users of the financial statements. IFRS 8 does not prescribe a minimum or  934 
 
maximum number of segments an entity should report as this is dependent on the individual 
entity
‘s circumstances. Reporting too many segments may however not be practical or helpful to 
users. Reportable segments may change as a result of: an entity changing its internal organization 
or  reporting  structure,  an  operating  segment  increasing  in  importance  and  meeting  the 
significance test, or an operating segment no longer meeting the significance test. When reporting 
segments change because of a change in the internal organization or reporting structure, the 
comparative  information  for  prior  periods  has  to  be  restated  to  reflect  the  new  reporting 
segments, unless the necessary information is not available and the cost to develop it would be 
excessive. If prior periods cannot be restated, then in the year of change the current period needs 
to be disclosed based on the new and old reportable segment bases, unless the information is not 
available and the cost to develop it would be excessive. 
Measurement and disclosure 
Under IFRS 8, reportable segments are measured as they are reported to the CODM, and they 
therefore do not necessarily comply with IFRS generally. Similarly, disclosures required by IFRS 
8 are generally based on the information reported to de CODM. One of the main differences 
between IAS 14 and IFRS 8 is that under IFRS 8 the segment results are disclosed in the financial 
statements as they are used by the CODM for the purposes of making decisions about allocating 
resources to the segment and assessing performance. Similarly only those assets and liabilities 
that are included in the measures of the segment
‘s assets and segment
‘s liabilities that are used by 
the CODM shall be reported for that segment. Reconciliations from the segment results and 
segments assets and liabilities to the entity
‘s results and entity
‘s assets and liabilities respectively 
need to be presented. The reported measures to be disclosed should be those that management 
believes are determined in accordance with the measurement principles most consistent with 
those used in measuring the corresponding amounts in the entity
‘s financial statements. 
If the CODM does not review a measure of liabilities no such measure needs to be disclosed. A 
measure of assets is required, however this would only reflect the amounts that are used by the 
CODM. If no asset information is reviewed by the CODM, the measure would be nil, and hence 
non-disclosure is deemed to be compliant with IFRS 8. 
The amount of each segment item reported should be the measure reported to the CODM for the 
purpose of making decision about the allocation of resources and the assessment of performance. 
When  reported  to  the  CODM  allocations  of  costs,  revenues,  assets  and  liabilities  should  be 
included in these measures. Allocations should be made on a reasonable basis. An entity should 
report its measure of profit or loss for each reportable segment. The following items should also 
be disclosed, if reviewed by or regularly provided to the CODM, whether or not they are included 
in the measure of the segments results: external revenues, intra-segment revenues, gross interest 
revenue and expense, depreciation and amortization, material items of income and expense as 
disclosed  under  paragraph  97  of  IAS  1,  the  entity
‘s  interest  in  associates  and  joint  ventures 
accounted for by the equity method, income tax expense or income, and other material non-cash 
items. 
IFRS 8 also contains disclosure requirements applicable to all entities, regardless of whether, or 
in what format, the information is reported to the CODM. The information needs to be presented 
in accordance with the entity
‘s accounting policies. 
Interaction of IFRS 8 with other standards 
There are important interactions between IFRS 8 and IFRS 5  Discontinued  Operations  and 
Assets Held for Sale and IAS 36 Impairment of Assets. Segmental reporting is also a requirement 
under IAS 34 Interim Financial Reporting, although less detail is required. 
The components identified as discontinued operations in accordance with IFRS 5 may either 
qualify  as  a  segment  under  IFRS  8  or  may  be  included  within  an  operating  segment  also 
containing continuing operations. The information to be disclosed under IFRS 8 will mainly 
depend on whether the information for discontinued operations is separately reported to and 935 
 
reviewed  by  the  CODM,  within  its  own  operating  segment.  An  entity  has  to  present  a 
reconciliation  from  the  segments  results  to  the  entity
‘s  profit  or  loss  before  discontinued 
operations,  unless  the  results  of  discontinued  operations  were  allocated  to  the  segment.  In 
accordance with IFRS 5, the reporting segment which inclused the discontinued operation should 
be identified and disclosed. 
Although to a lesser degree of detail and only by entities which are under the scope of IFRS 8 for 
their annual reporting. The following disclosures are required: amounts of revenues from external 
customers  and  intra-segment  revenues,  if  included  in  the  measure  of  segment  profit  or  loss 
reviewed by the chief operating decision maker or otherwise regularly provided to the chief 
operating decision maker, amount of the measure of segment profit or loss, amount of total assets 
for which there has been a material change from the amount disclosed in the last annual financial 
statements in the basis of segmentation or in the basis of measurement of segment profit or loss. 
On publication of IFRS 8, IAS 36 was amended to state that the c ash generating unit, or group of 
such units, to wich goodwill is allocated for the purpose of the goodwill impairment test cannot 
be larger than an operating segment identified under IFRS 8. Prior to the issuance of IFRS 8, the 
equivalent requirement in IAS 36 stated that the cash generating unit or group of such units, to 
which goodwill is allocated, cannot be larger than a segment based on the entity
‘s primary or 
secondary reporting format determined under IAS 14 and the operating segments identified under 
IFRS 8 pre-aggregation may therefore require the reallocations of goodwill for impairement test 
purposes on adoption of IFRS 8. IAS 36 provides guidance on the reallocagtion of goodwill 
resulting from a change in the composition of cash generating units. 
IAS 36 also contains additional disclosure requirements for entities within the scope of IFRS 8: 
The amount of impairment losses or reversed impairment losses recognized in profit or loss and 
in other comprehensive income by segment; for each material impairment loss or reversal of 
impairment loss, the segment to which the relevant asset or cash generating unit belongs. 
Transition 
IFRS 8 is effective for annual financial statements for periods beginning on or after 1 January 
2009. Early application is permitted and since IFRS 8 has been endorsed for use in the European 
Union, UK based entities can adopt this standard early for their financial reporting. If an entity 
provides segmental disclosures under IFRS 8, the fact should be disclosed. 
If an entity applies IFRS 8 from its effective date, that is to annual periods beginning on or after 1 
January  2009,  the  entitiy
‘s  first  IFRS  8  compliant  segmental  data  is  provided  in  its  interim 
financial report in accordance with IAS 34 Interim Financial Reporting. 
The proposed improvement by the IASB, Issue 3, in the exposure draft, Proposed Improvements 
to IFRS, published by the IASB in October 2008, is a clarification regarding the disclosure of a 
measure of segments assets, if such a measure is not reviewed by the CODM. The proposal is 
that if the measure is not reviewed by the CODM, non-disclosure in compliant with IFRS 8. The 
proposed amendment would not change the IFRS, but only the basis of conclusion. The proposed 
improvement would become effective from 1 January 2010, although earlier application would 
be permitted. 
 
REFERENCES 
1. International Financial Reporting Standards, 2007,  
The Body of Expert and Licensed Accountants of 
Romania Published, Bucharest 
2. IAS 14 – Segment Reporting 
3. IFRS 8 – Operating Segments, the Institute of Chartered Accountants in England and Wales 
(ICAEW) 
4. www.icaew.com/ecifrsstudy 

Reporting Standards,

IFRS 8 – OPERATING SEGMENTS

http://steconomice.uoradea.ro/anale/volume/2009/v3-finances-banks-and-accountancy/158.pdf

IFRS 8 – OPERATING SEGMENTS

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