IFRS 8 — Operating Segments

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Overview

IFRS 8 Operating Segments requires particular classes of entities (essentially those with publicly traded
securities) to disclose information about their operating segments, products and services, the geographical
areas in which they operate, and their major customers. Information is based on internal management
reports, both in the identification of operating segments and measurement of disclosed segment informa-
tion.
IFRS 8 was issued in November 2006 and applies to annual periods beginning on or after 1 January 2009.

History of IFRS 8

Date Development Comments

19 January 2006 ED 8 Operating Segmentsissued Comment deadline 19 May

2006. (IASB press release)

30 November 2006 IFRS 8 Operating Segments issued Effective for annual periods
beginning on or after 1 January
2009, superseding IAS
14 Segment Reporting

16 April 2009 Amended by Annual Improvements to Effective for annual periods

IFRSs 2009(disclosures of segment assets) beginning on or after 1 January
2010

18 July 2013 Report and Feedback Statement Post-im- Areas for potential improvement
plementation Review: IFRS 8 Operating and amendment will be consid-
Segments published ered through the IASB's normal
processes

12 December 2013 Amended by Annual Improvements to Effective for annual periods

IFRSs 2010–2012 Cycle (aggregation of beginning on or after 1 July
operating segments, reconciliations of 2014
assets)

Related Interpretations

o None

Amendments under consideration by IASB

o Clarifications arising from the post-implementation review of IFRS 8

Deloitte resources

Special edition newsletter

Deloitte has published a Special edition IAS Plus newsletter explaining the requirements of IFRS 8 and
what has changed from IAS 14 Segment Reporting.

Summary of IFRS 8

Scope
IFRS 8 applies to the separate or individual financial statements of an entity (and to the consolidated
financial statements of a group with a parent):
o whose debt or equity instruments are traded in a public market or
o that files, or is in the process of filing, its (consolidated) financial statements with a securities com-
mission or other regulatory organisation for the purpose of issuing any class of instruments in a
public market [IFRS 8.2]
However, when both separate and consolidated financial statements for the parent are presented in a
single financial report, segment information need be presented only on the basis of the consolidated
financial statements [IFRS 8.4]
Operating segments
IFRS 8 defines an operating segment as follows. An operating segment is a component of an entity:
[IFRS 8.2]
o 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)
o 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
o for which discrete financial information is available
Reportable segments
IFRS 8 requires an entity to report financial and descriptive information about its reportable segments.
Reportable segments are operating segments or aggregations of operating segments that meet specified
criteria: [IFRS 8.13]
o its reported revenue, from both external customers and intersegment sales or transfers, is 10 per cent
or more of the combined revenue, internal and external, of all operating segments, or
o the absolute measure of its reported profit or loss is 10 per cent or more of the greater, in absolute
amount, of (i) the combined reported profit of all operating segments that did not report a loss and (ii)
the combined reported loss of all operating segments that reported a loss, or
o its assets are 10 per cent or more of the combined assets of all operating segments.
Two or more operating segments may be aggregated into a single operating segment if aggregation is con-
sistent with the core principles of the the standard, the segments have similar economic characteristics and
are similar in various prescribed respects. [IFRS 8.12]
If the total external revenue reported by operating segments constitutes less than 75 per cent of the entity's
revenue, additional operating segments must be identified as reportable segments (even if they do not
meet the quantitative thresholds set out above) until at least 75 per cent of the entity's revenue is included
in reportable segments. [IFRS 8.15]
Disclosure requirements
Required disclosures include:
o general information about how the entity identified its operating segments and the types of products
and services from which each operating segment derives its revenues [IFRS 8.22]
o judgements made by management in applying the aggregation criteria to allow two or more operating
segments to be aggregated [IFRS 8.22(aa)]#
o information about the profit or loss for each reportable segment, including certain specified
revenues* and expenses* such as revenue from external customers and from transactions with other
segments, interest revenue and expense, depreciation and amortisation, income tax expense or
income and material non-cash items [IFRS 8.21(b) and 23]
o a measure of total assets* and total liabilities* for each reportable segment, and the amount of invest-
ments in associates and joint ventures and the amounts of additions to certain non-current assets
('capital expenditure') [IFRS 8.23-24]
o an explanation of the measurements of segment profit or loss, segment assets and segment liabilities,
including certain minimum disclosures, e.g. how transactions between segments are measured, the
nature of measurement differences between segment information and other information included in
the financial statements, and asymmetrical allocations to reportable segments [IFRS 8.27]
o reconciliations of the totals of segment revenues, reported segment profit or loss, segment assets*,
segment liabilities* and other material items to corresponding items in the entity's financial state-
ments [IFRS 8.21(b) and 28]
o some entity-wide disclosures that are required even when an entity has only one reportable segment,
including information about each product and service or groups of products and services [IFRS 8.32]
 o analyses of revenues and certain non-current assets by geographical area – with an expanded require-
ment to disclose revenues/assets by individual foreign country (if material), irrespective of the identi-
fication of operating segments [IFRS 8.33]
o information about transactions with major customers [IFRS 8.34]
# This disclosure requirement was added by Annual Improvements to IFRSs 2010–2012 Cycle, effective for annual periods beginning on
or after 1 July 2014.
* This disclosure is required only if such amounts are regularly provided to the chief operating decision maker, or in the case of specific
items of revenue and expense or asset-related items, if those specified amounts are included in the relevant measure (segment profit or
loss or segment assets).

Considerable segment information is required at interim reporting dates by IAS 34.

Remaining differences with US GAAP
The remaining differences with US GAAP (SFAS 131) are listed in IFRS 8.BC60.

Quick links

 Deloitte e-learning on IFRS 8

 Clarifications arising from the post-implementation review of IFRS 8
 IFRS 8 — Items not added to the agenda

Related news

 Paper on the satisfaction with existing segment disclosure requirements

10 Sep 2018
 We comment on the IASB's proposed improvements to IFRS 8
05 Jul 2017
 EFRAG draft comment letter on proposed improvements to IFRS 8
26 Apr 2017
 IASB publishes proposed improvements to IFRS 8
29 Mar 2017
 19th ESMA enforcement decisions report released
28 Jul 2016
 European Union formally adopts Annual Improvements to IFRS - Cycle 2010-
2012 and amendments to IAS 19
09 Jan 2015
 All Related

Related Publications

 Deloitte comment letter on the IASB's proposed improvements to IFRS 8
05 Jul 2017


 IFRS in Focus — IASB proposes improvements to IFRS 8
30 Mar 2017


 EFRAG endorsement status report 9 January 2015
09 Jan 2015


 IFRS in Focus — IASB issues Annual Improvements: 2010-2012 Cycle
12 Dec 2013
 All Related

Related Standards

 IAS 14 — Segment Reporting (Superseded)

 All Related

Related Projects

 Annual improvements — 2007-2009 cycle

 Annual improvements — 2009-2011 cycle
 Annual improvements — 2010-2012 cycle
 Clarifications arising from the post-implementation review of IFRS 8
 IFRS 8 — Items not added to the agenda

IAS 2 — Inventories

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Overview

IAS 2 Inventories contains the requirements on how to account for most types of inventory. The standard requires inventories to

be measured at the lower of cost and net realisable value (NRV) and outlines acceptable methods of determining cost, including

specific identification (in some cases), first-in first-out (FIFO) and weighted average cost.

A revised version of IAS 2 was issued in December 2003 and applies to annual periods beginning on or after 1 January 2005.
 History of IAS 2

Date Development Comments

September 1974 Exposure Draft E2 Valuation and Presentation of In-

ventories in the Context of the Historical Cost
System published

October 1975 IAS 2 Valuation and Presentation of Inventories in

the Context of the Historical Cost System issued

August 1991 Exposure Draft E38 Inventories published

December 1993 IAS 9 (1993) Inventoriesissued Operative for annual financial statements
covering periods beginning on or after 1
January 1995

18 December 2003 IAS 2 Inventories issued Effective for annual periods beginning on
or after 1 January 2005

Related Interpretations

o IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine

o SIC-1 Consistency - Different Cost Formulas for Inventories. SIC-1 was superseded by and incorporated into IAS 2

(Revised 2003).

Summary of IAS 2

Objective of IAS 2
The objective of IAS 2 is to prescribe the accounting treatment for inventories. It provides guidance for determining the cost of

inventories and for subsequently recognising an expense, including any write-down to net realisable value. It also provides

guidance on the cost formulas that are used to assign costs to inventories.

Scope
Inventories include assets held for sale in the ordinary course of business (finished goods), assets in the production process for

sale in the ordinary course of business (work in process), and materials and supplies that are consumed in production (raw

materials). [IAS 2.6]

However, IAS 2 excludes certain inventories from its scope: [IAS 2.2]

o work in process arising under construction contracts (see IAS 11 Construction Contracts)

o financial instruments (see IAS 39 Financial Instruments: Recognition and Measurement)

o biological assets related to agricultural activity and agricultural produce at the point of harvest (see IAS 41 Agriculture).

Also, while the following are within the scope of the standard, IAS 2 does not apply to the measurement of inventories held by:

[IAS 2.3]
o producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products, to the

extent that they are measured at net realisable value (above or below cost) in accordance with well-established practices in

those industries. When such inventories are measured at net realisable value, changes in that value are recognised in profit or

loss in the period of the change

o commodity brokers and dealers who measure their inventories at fair value less costs to sell. When such inventories are

measured at fair value less costs to sell, changes in fair value less costs to sell are recognised in profit or loss in the period of

the change.

Fundamental principle of IAS 2

Inventories are required to be stated at the lower of cost and net realisable value (NRV). [IAS 2.9]

Measurement of inventories
Cost should include all: [IAS 2.10]

o costs of purchase (including taxes, transport, and handling) net of trade discounts received

o costs of conversion (including fixed and variable manufacturing overheads) and

o other costs incurred in bringing the inventories to their present location and condition

IAS 23 Borrowing Costs identifies some limited circumstances where borrowing costs (interest) can be included in cost of inven-

tories that meet the definition of a qualifying asset. [IAS 2.17 and IAS 23.4]

Inventory cost should not include: [IAS 2.16 and 2.18]

o abnormal waste

o storage costs

o administrative overheads unrelated to production

o selling costs

o foreign exchange differences arising directly on the recent acquisition of inventories invoiced in a foreign currency

o interest cost when inventories are purchased with deferred settlement terms.

The standard cost and retail methods may be used for the measurement of cost, provided that the results approximate actual cost.

[IAS 2.21-22]

For inventory items that are not interchangeable, specific costs are attributed to the specific individual items of inventory. [IAS

2.23]

For items that are interchangeable, IAS 2 allows the FIFO or weighted average cost formulas. [IAS 2.25] The LIFO formula,

which had been allowed prior to the 2003 revision of IAS 2, is no longer allowed.

The same cost formula should be used for all inventories with similar characteristics as to their nature and use to the entity. For

groups of inventories that have different characteristics, different cost formulas may be justified. [IAS 2.25]

Write-down to net realisable value

 NRV is the estimated selling price in the ordinary course of business, less the estimated cost of completion and the estimated

costs necessary to make the sale. [IAS 2.6] Any write-down to NRV should be recognised as an expense in the period in which

the write-down occurs. Any reversal should be recognised in the income statement in the period in which the reversal occurs.

[IAS 2.34]

Expense recognition
IAS 18 Revenue addresses revenue recognition for the sale of goods. When inventories are sold and revenue is recognised, the

carrying amount of those inventories is recognised as an expense (often called cost-of-goods-sold). Any write-down to NRV and

any inventory losses are also recognised as an expense when they occur. [IAS 2.34]

Disclosure
Required disclosures: [IAS 2.36]
o accounting policy for inventories

o carrying amount, generally classified as merchandise, supplies, materials, work in progress, and finished goods. The classifi-

cations depend on what is appropriate for the entity

o carrying amount of any inventories carried at fair value less costs to sell

o amount of any write-down of inventories recognised as an expense in the period

o amount of any reversal of a write-down to NRV and the circumstances that led to such reversal

o carrying amount of inventories pledged as security for liabilities

o cost of inventories recognised as expense (cost of goods sold).

IAS 2 acknowledges that some enterprises classify income statement expenses by nature (materials, labour, and so on) rather than

by function (cost of goods sold, selling expense, and so on). Accordingly, as an alternative to disclosing cost of goods sold

expense, IAS 2 allows an entity to disclose operating costs recognised during the period by nature of the cost (raw materials and

consumables, labour costs, other operating costs) and the amount of the net change in inventories for the period). [IAS 2.39] This
is consistent with IAS 1 Presentation of Financial Statements, which allows presentation of expenses by function or nature.

IAS 41 — Agriculture
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Overview
IAS 41 Agriculture sets out the accounting for agricultural activity – the transformation of biological assets (living
plants and animals) into agricultural produce (harvested product of the entity's biological assets). The standard
generally requires biological assets to be measured at fair value less costs to sell.
IAS 41 was originally issued in December 2000 and first applied to annual periods beginning on or after 1 January
2003.
 History of IAS 41

Date Development Comments

December 1999 Exposure Draft E65 Agriculture Comment deadline 31 January 2000

December 2000 IAS 41 Agricultureissued Operative for annual financial statements covering
periods beginning on or after 1 January 2003

22 May 2008 Amended by Improvements to IFRSs(discount Effective for annual periods beginning on or after 1
rates) January 2009

30 June 2014 Amended by Agriculture: Bearer Plants Effective for annual periods beginning on or after 1
(Amendments to IAS 16 and IAS 41) January 2016

Related Interpretations

o None

Amendments under consideration by the IASB

o None

Summary of IAS 41

Objective
The objective of IAS 41 is to establish standards of accounting for agricultural activity – the management of the bio-
logical transformation of biological assets (living plants and animals) into agricultural produce (harvested product of
the entity's biological assets).

Scope
IAS 41 applies to biological assets with the exception of bearer plants, agricultural produce at the point of harvest,
and government grants related to these biological assets. It does not apply to land related to agricultural activity, in-
tangible assets related to agricultural activity, government grants related to bearer plants, and bearer plants.
However, it does apply to produce growing on bearer plants.
Note: Bearer plants were excluded from the scope of IAS 41 by Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41), which applies to

annual periods beginning on or after 1 January 2016.

Key definitions
[IAS 41.5]
Biological asset A living animal or plant

Bearer plant* A living plant that:

a. is used in the production or supply of agricultural produce

b. is expected to bear produce for more than one period, and

 c. has a remote likelihood of being sold as agricultural produce, except for incidental scrap

sales.

Agricultural The harvested product from biological assets

produce

Costs to sell The incremental costs directly attributable to the disposal of an asset, excluding finance costs and
income taxes

* Definition included by Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41), which applies to annual periods beginning on or after 1

January 2016.

Initial recognition
An entity recognises a biological asset or agriculture produce only when the entity controls the asset as a result of
past events, it is probable that future economic benefits will flow to the entity, and the fair value or cost of the asset
can be measured reliably. [IAS 41.10]

Measurement
Biological assets within the scope of IAS 41 are measured on initial recognition and at subsequent reporting dates at
fair value less estimated costs to sell, unless fair value cannot be reliably measured. [IAS 41.12]
Agricultural produce is measured at fair value less estimated costs to sell at the point of harvest. [IAS 41.13] Because
harvested produce is a marketable commodity, there is no 'measurement reliability' exception for produce.
The gain on initial recognition of biological assets at fair value less costs to sell, and changes in fair value less costs
to sell of biological assets during a period, are included in profit or loss. [IAS 41.26]
A gain on initial recognition (e.g. as a result of harvesting) of agricultural produce at fair value less costs to sell are
included in profit or loss for the period in which it arises. [IAS 41.28]
All costs related to biological assets that are measured at fair value are recognised as expenses when incurred, other
than costs to purchase biological assets.
IAS 41 presumes that fair value can be reliably measured for most biological assets. However, that presumption can
be rebutted for a biological asset that, at the time it is initially recognised, does not have a quoted market price in an
active market and for which alternative fair value measurements are determined to be clearly unreliable. In such a
case, the asset is measured at cost less accumulated depreciation and impairment losses. But the entity must still
measure all of its other biological assets at fair value less costs to sell. If circumstances change and fair value
becomes reliably measurable, a switch to fair value less costs to sell is required. [IAS 41.30]
Guidance on the determination of fair value is available in IFRS 13 Fair Value Measurement. IFRS 13 also requires
disclosures about fair value measurements.

Other issues
The change in fair value of biological assets is part physical change (growth, etc) and part unit price change.
Separate disclosure of the two components is encouraged, not required. [IAS 41.51]
Agricultural produce is measured at fair value less costs to sell at harvest, and this measurement is considered the
cost of the produce at that time (for the purposes of IAS 2 Inventories or any other applicable standard). [IAS 41.13]
Agricultural land is accounted for under IAS 16 Property, Plant and Equipment. However, biological assets (other
than bearer plants) that are physically attached to land are measured as biological assets separate from the land. In
some cases, the determination of the fair value less costs to sell of the biological asset can be based on the fair value
of the combined asset (land, improvements and biological assets). [IAS 41.25]
Intangible assets relating to agricultural activity (for example, milk quotas) are accounted for under IAS 38 Intangible
Assets.

Government grants
Unconditional government grants received in respect of biological assets measured at fair value less costs to sell are
recognised in profit or loss when the grant becomes receivable. [IAS 41.34]
If such a grant is conditional (including where the grant requires an entity not to engage in certain agricultural activity),
the entity recognises the grant in profit or loss only when the conditions have been met. [IAS 41.35]
 Disclosure
Disclosure requirements in IAS 41 include:

o aggregate gain or loss from the initial recognition of biological assets and agricultural produce and the change in

fair value less costs to sell during the period* [IAS 41.40]

o description of an entity's biological assets, by broad group [IAS 41.41]

o description of the nature of an entity's activities with each group of biological assets and non-financial measures

or estimates of physical quantities of output during the period and assets on hand at the end of the period [IAS

41.46]

o information about biological assets whose title is restricted or that are pledged as security [IAS 41.49]

o commitments for development or acquisition of biological assets [IAS 41.49]

o financial risk management strategies [IAS 41.49]

o reconciliation of changes in the carrying amount of biological assets, showing separately changes in value,

purchases, sales, harvesting, business combinations, and foreign exchange differences* [IAS 41.50]

* Separate and/or additional disclosures are required where biological assets are measured at cost less accumulated depreciation [IAS 41.55]
Disclosure of a quantified description of each group of biological assets, distinguishing between consumable and
bearer assets or between mature and immature assets, is encouraged but not required. [IAS 41.43]
If fair value cannot be measured reliably, additional required disclosures include: [IAS 41.54]

o description of the assets

o an explanation of why fair value cannot be reliably measured

o if possible, a range within which fair value is highly likely to lie

o depreciation method

o useful lives or depreciation rates

o gross carrying amount and the accumulated depreciation, beginning and ending.
If the fair value of biological assets previously measured at cost subsequently becomes available, certain additional
disclosures are required. [IAS 41.56]
Disclosures relating to government grants include the nature and extent of grants, unfulfilled conditions, and signifi-
cant decreases expected in the level of grants. [IAS 41.57]