IFRS 8 operating segments

IFRS 8 applies to entities whose debt or equity instruments are traded in a public market, or that are filing to issue them, and to groups whose parent is in that position. It requires segment information to be presented as management sees the business: segments are the components whose results the chief operating decision maker reviews to allocate resources, and the numbers disclosed are the numbers that person is given, reconciled to the accounts.

Which entities have to report operating segments?

Paragraph 2 of IFRS 8 applies the standard to the separate or individual accounts of an entity, and the consolidated accounts of a group whose parent is such an entity, where:

• its debt or equity instruments are traded in a public market, which the standard says includes a domestic or foreign stock exchange or an over the counter market, including local and regional markets; or
• it files, or is in the process of filing, its accounts with a securities commission or other regulator in order to issue any class of instruments in a public market.

Three points follow. Listed debt is enough, so a company with only bonds listed is caught. The test is wider than the UK regulated market test in section 403 of the Companies Act 2006 that decides when UK companies must use IFRS. And where a report contains both consolidated and parent company accounts, paragraph 4 requires segment information only in the consolidated accounts.

Entities outside the scope may give segment analysis voluntarily, but paragraph 3 forbids calling it segment information unless it complies. FRS 102 takes the same line: paragraph 1.5 requires an entity whose debt or equity instruments are publicly traded, or that chooses to provide information described as segment information, to apply IFRS 8 (see FRS 102 explained).

Who is the chief operating decision maker?

Paragraph 7 says the term identifies a function, not a job title. The function is allocating resources to, and assessing the performance of, the operating segments. It is often the chief executive or chief operating officer, but it may be a group of executive directors or others. Identifying the decision maker correctly comes first, because everything else in IFRS 8 is driven by what that person or body receives.

How are operating segments identified?

Paragraph 5 defines an operating segment as a component that:

1. engages in business activities from which it may earn revenues and incur expenses, including with other parts of the group;
2. has operating results regularly reviewed by the chief operating decision maker to allocate resources and assess performance; and
3. has discrete financial information available.

A start up can be an operating segment before it earns revenue. Paragraph 6 says a head office or functional department that earns no revenue, or only incidental revenue, is not one, and nor are pension plans. Where the decision maker sees more than one set of information, paragraph 8 points to the nature of the activities, whether managers are responsible for them, and what goes to the board. Paragraph 9 adds that a segment usually has a segment manager accountable to the decision maker. In a matrix organisation, with managers for both products and regions, paragraph 10 requires the choice to be made by reference to the core principle in paragraph 1.

Which segments must be reported separately?

Operating segments may be aggregated only if aggregation is consistent with the core principle, they have similar economic characteristics such as similar long term average gross margins, and they are similar in all five respects in paragraph 12: products and services, production processes, type of customer, distribution methods and, where relevant, regulatory environment. Paragraph 22(aa) requires the judgements behind aggregation to be disclosed.

Paragraph 13 then requires separate reporting of any segment that meets any one of three 10% tests: revenue, including intersegment revenue, of 10% or more of combined revenue; absolute profit or loss of 10% or more of the greater of combined profits of profitable segments and combined losses of loss making segments; or assets of 10% or more of combined segment assets. Further rules apply:

• if reportable segments’ external revenue is below 75% of the entity’s revenue, more segments must be added until it reaches 75% (paragraph 15);
• everything else goes into an all other segments category, with its revenue sources described (paragraph 16);
• a segment of continuing significance stays reportable even if it falls below the thresholds (paragraph 17); and
• once the number of reportable segments rises above ten, the entity should consider whether a practical limit has been reached (paragraph 19).

Illustration only. A group has five operating segments and no intersegment sales.

Segment	Revenue £000	Profit or loss £000	Assets £000	Reportable?
A	5,000	600	4,000	Yes, all tests
B	3,000	300	2,500	Yes, all tests
C	1,200	(150)	900	Yes, revenue 12% and loss over threshold
D	500	120	300	Yes, profit test only
E	300	30	300	No, all other segments
Total	10,000		8,000

Combined profits are £1,050k and combined losses £150k, so the profit threshold is 10% of £1,050k, or £105k. Segment D passes on profit alone despite having only 5% of revenue. Reportable segments hold 97% of external revenue, so the 75% test is met.

What has to be disclosed for each reportable segment?

Paragraph 23 requires a measure of profit or loss for every reportable segment, and total assets and liabilities only if those are regularly provided to the decision maker. It also requires specified amounts, including external and intersegment revenue, interest revenue and expense, depreciation and amortisation, material items of income and expense, equity accounted results, tax and material non cash items, where they are included in the profit measure reviewed or otherwise regularly provided. The IFRS Interpretations Committee confirmed in June 2024 that an amount must be disclosed if it is included in the reviewed profit measure, even if not separately reviewed.

The figures are measured on the decision maker’s basis, not necessarily on IFRS (paragraph 25). Paragraph 27 requires an explanation of the measurement basis, including intersegment pricing and how central costs are allocated, and paragraph 28 requires reconciliations of total segment revenue, profit or loss, assets, liabilities and other material items to the entity’s figures, with material reconciling items identified separately. Paragraph 22 also requires the factors used to identify segments and the products and services of each.

What disclosures apply even with one segment?

Paragraphs 31 to 34 apply to every entity in scope, including one with a single reportable segment:

• revenue from external customers by product or service, or group of similar products and services (paragraph 32);
• external revenue split between the country of domicile and all foreign countries, with any material individual country shown separately, and non current assets other than financial instruments, deferred tax, pension assets and insurance rights split the same way (paragraph 33);
• where a single external customer provides 10% or more of revenue, that fact, the revenue from each such customer and the segments concerned. The customer need not be named, and entities under common control count as one customer (paragraph 34).

What happens when the group reorganises?

If a change in internal organisation changes the composition of reportable segments, paragraph 29 requires comparatives, including interim periods, to be restated unless the information is unavailable and too costly to develop, judged item by item. If they are not restated, paragraph 30 requires the current year to be shown on both the old and new bases.

How does IFRS 8 interact with other standards?

• Goodwill. IAS 36 paragraph 80 requires goodwill to be tested at a level no larger than an operating segment before aggregation (see IFRS 3 business combinations).
• IFRS 18. A segment profit measure is a management defined performance measure only if it describes the entity as a whole, and MPM disclosures may share the segment note if clearly distinguished (IFRS 18 paragraphs B114 and B133; see IFRS 18 presentation and disclosure).

Where do companies go wrong?

• Presenting fewer segments than the board pack shows, or aggregating segments with different margins or customers.
• Omitting segment assets when they are regularly given to the decision maker, or disclosing them when they are not.
• Giving a reconciliation that bundles material items together.
• Restating segment profit onto an IFRS basis that the decision maker never sees.
• Forgetting the major customer and country disclosures in a single segment business.

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Related Accountapedia entries

• IFRS 19 subsidiaries without public accountability
• Earnings per share under IAS 33
• Annual goodwill impairment testing under IAS 36
• FRS 102 Section 9: consolidated and separate accounts
• Exceptional items: when to show them separately

Sources

• IFRS Foundation: Ifrs8
• legislation.gov.uk: Act 2006 c. 46, section 403
• Financial Reporting Council: FRS 102 September 2024 tmKYWO6
• IFRS Foundation: Ias36
• IFRS Foundation: Ifrs18

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.