IFRS 8 governs how a publicly traded entity breaks down its financial results by operating segment. Its organizing idea is simple: the segment picture you show investors should match the one your top decision-makers already use to run the company. Rather than imposing a fixed segmentation model, the standard borrows the structure, the metrics, and the groupings from internal management reporting, then layers on tests to decide which pieces get reported separately and what has to be disclosed for each.
Who Has to Apply IFRS 8
The standard applies to any entity whose debt or equity instruments trade on a public market, including domestic and foreign stock exchanges and over-the-counter markets. It also captures entities in the process of filing financial statements with a securities regulator for the purpose of issuing instruments in a public market.1IFRS Foundation. IFRS 8 – Determination of Scope It covers both individual entity statements and, where relevant, the consolidated statements of a group whose parent meets the same criteria. Private companies with no listed securities and no plans to list are outside the scope.
The Management Approach and the CODM
The core of the standard is the management approach. Whatever internal structure leadership uses to evaluate performance and allocate resources is the structure reported externally.
The person or group performing that function is the chief operating decision maker, or CODM. It’s a role, not a title. The CODM might be the CEO, the COO, or an executive committee.2IFRS Foundation. IFRS 8 Operating Segments What matters is whose desk the internal performance reports land on and who acts on them. Identifying the CODM correctly is the starting point, because the information flowing to that person is what defines the segments.
What Counts as an Operating Segment
A component of the business is an operating segment only when all three of the following conditions hold at the same time:3IFRS Foundation. IFRS 8 Operating Segments
- It engages in business activities from which it may earn revenues and incur expenses, including transactions with other parts of the same entity. A start-up division that hasn’t yet earned revenue can still qualify.
- Its operating results are regularly reviewed by the CODM when deciding how to deploy resources and assess performance.
- Discrete financial information about the component is available. Full IFRS-compliant statements aren’t needed; management-level financial data is enough.
A large division whose results never reach the CODM’s attention isn’t an operating segment. Size alone doesn’t put it in scope; internal review does.
Which Segments Have to Be Reported Separately
Not every operating segment gets its own column. IFRS 8 uses three quantitative tests, and a segment that meets any one of them must be reported separately:4IFRS Foundation. IFRS 8 Operating Segments
- Revenue test: reported revenue, counting both external sales and intersegment transfers, is 10 percent or more of the combined internal and external revenue of all operating segments.
- Profit or loss test: the absolute amount of the segment’s reported profit or loss is 10 percent or more of the greater of (a) the combined profit of all segments that were profitable, or (b) the combined loss of all segments that reported a loss.
- Asset test: the segment’s assets are 10 percent or more of the combined assets of all operating segments.
A segment that falls below all three thresholds does not have to be reported separately, though management can choose to report it anyway if the information helps investors.3IFRS Foundation. IFRS 8 Operating Segments
The 75 Percent Coverage Rule
On top of the size tests, external revenue of all reportable segments combined must reach at least 75 percent of the entity’s total external revenue. If it doesn’t, additional operating segments must be designated as reportable, even if they individually failed every size test, until the 75 percent threshold is met.4IFRS Foundation. IFRS 8 Operating Segments This stops a company from parking a large slice of revenue in a vague catch-all.
A Practical Ceiling on Segments
At the other end, the standard notes that once the number of reportable segments climbs above ten, the entity should consider whether a practical limit has been reached.4IFRS Foundation. IFRS 8 Operating Segments No hard cap applies.
Combining Segments
Two or more operating segments can be aggregated into a single reportable segment, but only where the segments share similar economic characteristics and are also similar across all five of these dimensions:3IFRS Foundation. IFRS 8 Operating Segments
- Products and services sold
- Production processes
- The type or class of customer served
- Distribution methods
- Regulatory environment, where relevant
The standard offers a rule of thumb for economic similarity: segments with significantly different long-term average gross margins probably don’t share similar economic characteristics.
Segments that don’t meet any quantitative threshold and aren’t voluntarily reported must be grouped into an “all other segments” category, shown separately from the reconciling items that bridge to the consolidated numbers.4IFRS Foundation. IFRS 8 Operating Segments The sources of the revenue in that category must be described. Non-reportable segments can only be combined into it, or into a reportable segment, where they share similar economic characteristics and meet a majority of the five aggregation criteria.
What Must Be Disclosed for Each Reportable Segment
Disclosure comes in two layers. The first is general: the factors used to identify segments, typically the internal organizational structure, and a description of the products and services from which each segment earns revenue.
The second is financial. At a minimum, the entity must report a measure of profit or loss for each segment. If the CODM regularly reviews segment-level assets or liabilities, those must be reported too.2IFRS Foundation. IFRS 8 Operating Segments
Beyond the headline profit-or-loss figure, the following items must be disclosed for each segment whenever they are included in the CODM’s profit-or-loss measure or are otherwise regularly provided to the CODM:5IFRS Foundation. IFRS 8 Operating Segments
- Revenue from external customers and intersegment revenue, shown separately
- Interest revenue and interest expense
- Depreciation and amortization
- Material items of income and expense
- The entity’s share of the profit or loss of associates and joint ventures
- Income tax expense or income
- Material non-cash items other than depreciation and amortization
Where segment assets are reported, the entity must also disclose investments in associates and joint ventures, and additions to non-current assets, when those amounts are included in or regularly provided alongside the segment asset figures. The profit-or-loss measure used for each segment is whatever the CODM actually reviews; it may not match net income calculated under full IFRS.
The basis of accounting for intersegment transactions must also be disclosed, including whether transfers between segments are priced at cost, cost-plus, or market rates. Transfer pricing choices can shift profits between segments and change how they look on a standalone basis.
Reconciling to the Consolidated Numbers
Segment data isn’t complete without a bridge back to the consolidated financial statements. IFRS 8 requires reconciliations of:4IFRS Foundation. IFRS 8 Operating Segments
- Total reportable segment revenues to the entity’s consolidated revenue
- Total segment profit or loss to profit or loss before tax and discontinued operations, or after tax if tax is allocated to segments
- Total segment assets to consolidated assets, if segment assets are reported
- Total segment liabilities to consolidated liabilities, if segment liabilities are reported
- Every other material item of segment information to the corresponding consolidated amount
Each material reconciling item must be separately identified and described. Common items include unallocated corporate headquarters costs, eliminations of intersegment transactions, and differences in accounting policies between the internal segment reports and the IFRS-compliant consolidated statements.
Entity-Wide Disclosures
A further set of disclosures applies to every entity within scope, including those with only a single reportable segment.4IFRS Foundation. IFRS 8 Operating Segments
Products and Services
External revenue must be reported for each product or service, or each group of similar products and services. If the information is not available and the cost of developing it would be excessive, that fact must be disclosed.
Geographic Information
External revenues must be split between the entity’s country of domicile and all foreign countries combined. If revenue from any individual foreign country is material, it must be disclosed separately, along with the basis for attributing revenue to specific countries. The same home-versus-foreign split applies to non-current assets, excluding financial instruments, deferred tax assets, and post-employment benefit assets.
Major Customers
Where revenue from a single external customer reaches 10 percent or more of the entity’s total revenue, the entity must disclose that fact, the total revenue from each such customer, and the segments reporting that revenue. A group of entities under common control counts as a single customer. The customer does not have to be named.
When the Segment Structure Changes
When an internal reorganization changes the composition of reportable segments, prior-period segment data must be restated on the new basis so that year-on-year comparisons hold.4IFRS Foundation. IFRS 8 Operating Segments The requirement extends to interim periods.
If restatement isn’t feasible because the data is unavailable and the cost to reconstruct it would be excessive, the entity must disclose segment information for the current period on both the old and the new basis, and state whether prior periods have been restated.
What Changes Under IFRS 18
IFRS 18 takes effect for annual reporting periods beginning on or after 1 January 2027 and amends parts of IFRS 8.2IFRS Foundation. IFRS 8 Operating Segments Segment profit or loss will need to align with the new income-statement categories IFRS 18 introduces, so operating, investing, and financing line items will flow through to segment-level reporting. Material items of income and expense disclosed under the new IFRS 18 rules, replacing the current IAS 1 reference, will need to be broken out by segment as well. Early application is permitted.
The practical work sits in the management reporting that feeds the CODM: check now whether segment results already come through in categories that map to the IFRS 18 framework, or whether systems and processes need updating before the 2027 effective date.