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04/18/2023
IAS 14 1
IAS 14
SEGMENT REPORTING
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OBJECTIVE
Report information by segment Activities Products Geographical areas
Increase understanding of Past performance Risks and returns of diversified entity Profitability Opportunities for growth
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SCOPE
Required for entities who publically trade equity or debt securities and encouraged for other entities
Present segment information on Consolidated basis if single report contains
Consolidated and separate financial statements of parent and/or subsidiaries
Entity basis of investor if single report contains Financial statements of investor who trades securities
publically and those of equity accounted associates or joint ventures
Own separate financial statements if securities of single entity are publically traded
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IAS 14
Definitions
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Definitions
Other standards
•Operating activities•Accounting policies•RevenueSeg
ment
•Business•Geographical
Segment
•Revenue•Expense•Results•Assets•Liabilities
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DEFINITIONS from other standards
Operating activities: principal revenue-producing activities and other activities that are not investing and financing
Accounting policies: principles, bases, conventions, rules and practices applied in preparing and presenting financial statements
Revenue: gross inflow of economic benefits During the period From ordinary activities Result in increases in equity Not relating to contributions from equity participants
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IAS 14
DEFINITIONS OF BUSINESS SEGMENT AND GEOGRAPHICAL SEGMENT
Distinguishable component of an entity
Provides individual/related product or service Nature of product or
production process Customer Distribution Regulatory environment
Risks and returns different from other segments
Distinguishable component of an entity
Particular economic environment Economic & political conditions Relationships between areas Proximity Special risks Exchange control Currency risks
Risks and returns different from other economic environments
Location of operations or markets
Business segment Geographical segment
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IAS 14
Example: Identifying segments
Sources of income
Rent of landGamesPhotosTraining
Countries
South AfricaChinaSouth AmericaIndia
Business segment Geographical segment
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DEFINITIONS : SEGMENT REVENUE
Segment revenue: revenue allocated on a reasonable basis to a segment
Including: Share of profit/loss of associates, joint ventures,
investments accounted for under equity method included in consolidated revenue
Share of revenue of jointly controlled entity accounted for under proportionate consolidation
excluding: Interest or dividend income, unless trading in financial
sector Income from investments or debt, unless trading in
financial sector
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Definitions: Segment expense Definition:
Results from operating activities Directly attributable to the segment Relevant portions allocated on a reasonable basis Relating to external and inter-segment sales
Includes: Expenses of jointly controlled entity accounted for under proportionate
consolidation Interest income/expense of primary activities of a financial nature
Report net amount only if netted in consolidated or entity financial statements Excludes:
unless the primary activity is financing interest losses on sale of investments or settlement of debt Share of losses of investments accounted for under equity method Income tax Incurred for the whole entity (general admin) unless allocated to segment on a
reasonable basis
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Definitions
Segment result: segment revenue less expense before minority interest
Segment accounting policies are policies used to prepare: consolidated financial statements single entity financial statements segmented reports
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IAS 14
Definitions
Result from operating activities of a segment
Directly attributable or allocated on a reasonable basis after deducting allowances reported in entity balance sheet Include related assets of
interest income included in segment results
profit or loss of investments JV’s under proportionate
consolidation Do not include income tax assets
Result from operating activities of a segment
Directly attributable or allocated on a reasonable basis Include related liabilities of
interest expense included in segment results
JV’s under proportionate consolidation
Do not include income tax liabilities
Segment assets Segment liabilities
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Identifying segment revenue, expense, assets and liabilities
Start with internal financial reporting as a guide to allocate items of revenue, expense, assets or liabilities to segments
Ensure allocation is reasonable to external users, i.e. not subjective, arbitrary or difficult to understand
Exclude general entity or head office items Include operating liabilities (trade creditors), but exclude financing
liabilities (loans to finance the entity) Include adjustments in business combinations Include revaluation adjustments Use cost allocation guidance in IAS 2 and IAS 11 Exclude consolidation adjustments except between group entities in a
single segment Disclose segment accounting policies
Identification of segments Method of pricing inter-segment transfers Basis for allocating revenue and expenses
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IAS 14
Identifying reportable segments
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Reportable segments
Reporting
format: Primary/ seconda
ry
Segment:
Business/ geograp
hical
Reportable segment
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Risk and returns
• Products• Location
Dominant
source
• Organisation
• Management
• Reporting
Structures
• Business segment
• Geographical segment
Primary Reporti
ng Format
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Primary Reporting Format
Risk
Product
Business segment
Location
Geographic segment
Both/matrix structure
Business segment
Neither
Choice
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PRIMARY AND SECONDARY SEGMENT REPORTING FORMATS
If dominant source of risk/return based on: Products, then reporting format = primary business
segments + secondary geographic segments Areas, then reporting formats = primary geographic
segments + secondary business segments Equally on products and areas in matrix structure, then
reporting formats = primary business segments + secondary geographic segment
Neither products/services, then key management need to make a choice based on organisational structure, management structure & internal financial reporting system
Matrix presentation: full disclosure on both business and geographic segments is not required or prohibited
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REPORTABLE SEGMENTS
External reporting
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Segments for external reporting Use segments defined for internal reporting to key personnel
To evaluate past performance To allocate future resources
If business units for internal reporting not based on products or geography Base on primary source of risk and return Use factors in definitions of business and geographic segments
First look at reporting to key management then to lower levels of reporting
Do not construct segments for external reporting Combine internal segments for external reporting if
Similar long term financial performance Similar in all factors of definitions of business and geographic
segments per IAS 14
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Thresholds for external reporting
Sales•> 10%•total revenue to external customers
Profit/loss
•> 10%•Combined result•Higher of profit or loss
Assets
•> 10%•Total assets
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Thresholds for reportable segments
Reportable if Sales by segment to external customers > 10% of
total revenue of all internal and external segments Segment profit or loss >10% of combined result of
the higher of combined segment profits or combined segment losses
Segment assets > 10% of total assets If a segment is smaller than threshold
Designate as reportable or Combine with results of other segments below
threshold or Include as unallocated reconciling item
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Thresholds for reportable segments
Report at least 75% of total consolidated or entity external revenue in segments Identify reportable segments Add segments that do no meet threshold until 75% of external
revenue is reported Not necessary to report different stages of vertically integrated
entities in separate segments Encouraged Disclose basis of pricing of inter-segment transfers Combine buying and selling segments in external reporting or if not
reasonable include as unallocated reconciling item Continue to report if reportable thresholds were met in
previous period if segment of continuing significance If new segment becomes reportable in current period, restate
comparatives for that segment unless impracticable to do so.
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Segment accounting policies
Must conform with policies of Financial Statements Detailed calculations for whole entity can be allocated to
segments on reasonable basis Additional segment information not based on accounting
policies of the whole entity can be disclosed if Reported internally to key management Used for performance evaluation and allocation of resources Basis of measurement clearly described
Assets used by > one segment must be allocated to segments where related revenue and expenses are allocated Follow definitions of segment assets, liabilities, revenue and
expenses
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IAS 14
DISCLOSURES
Primary reporting format
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DISCLOSURES: Primary reporting format
Revenue To external customers To other segments
Result Profit/loss from investments accounted for under equity
method Continuing operations Discontinued operations
Restate comparatives of operations classified as discontinued Gross margin, result of ordinary activities before tax
& large or unusual items or revenue/expense is encouraged
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DISCLOSURES: Primary reporting format
Assets Carrying amount Additions Depreciation Investments accounted for under equity
method Liabilities Depreciation and significant other non-
cash expenses OR segment cash flow
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Disclosures: reconciliation
Reconcile segment information to whole entity/consolidated accounts Segment revenue to entity revenue from external
customers Revenue to external customers not included in
segment reporting Segment result from continuing operations to
entity operating profit/loss Segment result from discontinued operations to
entity profit/loss from discontinued operations Segment assets to entity assets Segment liabilities to entity liabilities
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IAS 14
Disclosures
Secondary reporting format
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IAS 14
Secondary reporting format
Revenue from external customers by geographical area if 10% or more of total entity sales to external customers
Segment assets by geographical location where 10% or more of entity assets
Asset additions by geographical location if 10% or more of total additions to entity assets
Where business segment assets / revenue to external customers is 10% or more of entity assets/entity revenue to external customers: Segment revenue from
external customers Carrying amount of
segment assets Additions to segment
assets
Primary reporting format = business segments
Primary reporting format = geographical segments
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IAS 14
Secondary reporting format
Revenue from sales to external customers if 10% or more than
total entity revenue to external customers
Assets and customers in different locations
If assets and customers are in different locations and
External sales 10% or more than entity sales Carrying amount of
assets by geographic location
Additions to those assets in the period
Primary format = geographical segmentation of assets/products
Primary format = geographical segmentation of customers
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Other disclosures
Segments not reportable
No disclosure
<10% of external revenue
No longer meet
threshold
Mostly inter-
segment sales
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Other Disclosures
If revenue to external customers is > 10% of entity revenue to external customers
Measure at actual price,
disclose basis of pricing and any
changes
Statement of that fact
Amount sold to external customers
Amount sold to other
segments
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Other disclosures
Changes in accounting policy:
-- Identifying segments
-- Allocating revenue and expenses
-- not basis for pricing sales to other segments
Disclose•Nature of change•Reason for change•Comparatives restated?•Financial effect of change
Cannot determine comparative •Report segment data on old and new basis in year of change•Retrospectively or prospectively from earliest possible period
IAS 8 •Only change policy if required by IASs or more relevant & reliable information disclosed•Cumulative and period specific effect in order to assess trends
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Other disclosures
Change in method used to price inter-segment sales is not a change in accounting policy but disclosure of any changes is required
Types of products & services in each business segment
Composition of each reported geographic segment
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Aim of other disclosures
Analyse the following trends: Shifts in demand Effect of changing prices Effect of new products Changes in political and economic
environment Risks and rates of return in different regions
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Summary
Segments are reported by class of product/service and geographical location based on internal reporting to key management
Segments are reportable if they meet thresholds for sales, profit or loss & assets
Maximum disclosure is required for primary segmentation format, and less detailed disclosure is required for secondary segmentation format If geographic is primary, then product/service is secondary &
visa versa Other disclosures are required for:
Significant segments that do not meet thresholds Changes in accounting policy Inter-segment pricing of sales
