International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards

by International GAAP 2019 (pdf)

  In Example 32.7 above, Units 1, 2, 5, 7, 8 and 9 were identified as reportable segments. The total external

  revenue attributable to these reportable segments is £230m. This is only 74.2% of total external revenues and

  therefore less than the required 75% of total external revenue of £310m.

  The entity is therefore required to identify additional segments as reportable segments, even if they do not

  meet the quantitative thresholds at 3.2.2 above. Entities that have numerous operating segments often will

  have latitude in selecting operating segments to meet the 75% test. In this case, Unit 3, with external revenue

  of £15m (4.8%), Unit 4’s external revenue of £30m (9.7%) and Unit 6’s external revenue of £35m (11.3%)

  would each take the total above the required 75%. The entity can choose to present any of these as a reportable

  segment, leaving the others to be combined to form the item for ‘all other segments’.

  The ‘all other segments’ category must be presented separately from other reconciling

  items. [IFRS 8.16]. This raises the question whether headquarters, treasury and similar

  central functions (sometimes referred to as ‘corporate items’) should be included in

  ‘all other segments’ or in the reconciliation. In practice, the headquarters activities

  and its related accounting effects will not always be allocated to the operating

  segments for internal reporting purposes. The description of ‘all other segments’ refers

  to ‘other business activities and operating segments’. [IFRS 8.16]. It could be argued that

  central functions are not business activities, but support functions which should be

  part of the reconciliation. On the other hand, they could be regarded as incidental

  business activities. There is no guidance to suggest that either presentation is ruled

  out by the Standard.

  3.2.5

  A ‘practical limit’ for the number of reported operating segments

  IFRS 8 states that there may be a practical limit to the number of separately reportable

  segments beyond which segment information may become too detailed. Without

  prescribing such a limit, it suggests that an entity expecting to disclose more than 10

  separate reportable segments should consider whether the practical limit has been

  reached. [IFRS 8.19].

  3.2.6

  Restatement of segments reported in comparative periods

  When an operating segment is identified for the first time as a reportable segment in

  accordance with the thresholds at 3.2.2 above, the prior period segment data that is

  presented for comparative purposes should be restated to reflect the newly reportable

  segment regardless of whether it would have satisfied the quantitative thresholds in the

  prior period. Only if the necessary information is not available and the cost to develop

  it would be excessive would prior periods not be restated. [IFRS 8.18].

  4 MEASUREMENT

  For an entity that does not present IFRS-compliant financial information to its chief

  operating decision maker, the measurement regime in IFRS 8 means that the values

  disclosed for segment revenue, profit or loss, and (when reported) assets or liabilities could

  be very different to those reported elsewhere in the financial statements. For example,

  Operating

  segments

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  management might include gains on sale of property, plant and equipment in its measure

  of segment revenue but not be permitted to do so in its financial statements. [IAS 16.68].

  There is no requirement in IFRS 8 for segment information to be prepared in

  conformity with the accounting policies used to present the financial statements of

  the consolidated group or entity. IFRS 8 requires amounts reported to be the same

  as those measures used by the chief operating decision maker for determining

  resource allocation and for assessing performance. [IFRS 8.25]. This requirement is

  interpreted strictly. For example, unless adjustments and eliminations made in

  preparing the financial statements are reflected in the information used by the chief

  operating decision maker, an entity is prohibited from restating reported segment

  profit or loss for those adjustments and eliminations. In addition, the Standard

  prohibits any further allocation of revenues, expenses and gains and losses in

  determining segment profit or loss unless that measure is used by the chief operating

  decision maker. [IFRS 8.25]. IFRS 8 does not require symmetry between the revenues

  and expenses included in segment result and the assets and liabilities allocated to

  segments; it simply requires disclosure of the nature and effect of any asymmetrical

  allocations to reportable segments, for example when depreciation expense is

  reflected in segment profit or loss, but the related depreciable assets are not allocated

  to that segment. [IFRS 8.27(f)]. Only those assets and liabilities taken into account by

  the chief operating decision maker will be included in assets and liabilities reported

  for that segment. [IFRS 8.25].

  The amounts presented for segment revenue, profit or loss, assets and liabilities

  need bear no relationship to the values reported elsewhere in the financial

  statements, if the only measure of each that is used by the chief operating decision

  maker is not prepared in accordance with the entity’s accounting policies or even

  under IFRS. [IFRS 8.26]. However, there is a constraint on this otherwise ‘free-for-

  all’, since in those cases where a number of measures of segment profit or loss,

  assets or liabilities are used by the chief operating decision maker, an entity is

  required to select for its segment disclosures the measurements that are most

  consistent with those used in preparing the financial statements. [IFRS 8.26]. A key

  judgement that can significantly affect the segment disclosures reported in the

  financial statements arises when an entity seeks to distinguish information used by

  the chief operating decision maker for determining resource allocation and for

  assessing performance from other information and supporting detail which is

  regularly provided. Whether, for example, it is appropriate to ignore IFRS-

  compliant measures provided to the chief operating decision maker on the basis

  that they are not used for determining resource allocation and for assessing

  performance depends on the facts and circumstances supporting that assertion.

  Nevertheless, it might be appropriate to apply a rebuttable presumption that

  management effort is not normally wasted in providing the chief operating decision

  maker with information that is not used.

  Instead of defining the elements of segment information to be disclosed and requiring

  that they be prepared under the same policies and principles applied in producing the

  financial statements, IFRS 8 requires an entity to explain how it has measured segment

  profit or loss and segment assets and liabilities for each reportable segment and to

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  reconcile this to the information reported under IFRS. [IFRS 8.27-28]. These requirements

  are discussed at 5.5 and 5.6 below.

  5

  INFORMATION TO BE DISCLOSED ABOUT REPORTABLE

  SEGMENTS

  IFRS 8 establishes a general principle for an entity to disclose information to enable

  users of its financial statements to evaluate
the nature and financial effects of the types

  of business activities in which the entity engages and the economic environments in

  which it operates. [IFRS 8.20]. This principle is met by disclosing the following information

  for each period for which a statement of comprehensive income or separate income

  statement is presented:

  (a) general information on segments identified for reporting;

  (b) reported segment profit or loss, including information about specified revenues

  and expenses included in reported segment profit or loss, segment assets and

  segment liabilities (if reported to the CODM) and the basis of measurement; and

  (c) reconciliations of the totals of segment revenues, reported segment profit or loss,

  segment assets, segment liabilities and other material segment items to the

  corresponding entity amounts in the financial statements. [IFRS 8.21].

  Reconciliations of amounts reported in the statement of financial position for reportable

  segments are required as at each date for which a statement of financial position is

  presented. [IFRS 8.21].

  These requirements are addressed in more detail below and the information described

  therein should be given separately for each segment determined to be reportable using

  the process set out at 3.2 above. [IFRS 8.11].

  As discussed at 3.1.2 above, the identification of the chief operating decision maker can be

  a critical judgment in applying IFRS 8 because of its potential impact on what information

  is considered for disclosure. However, there has been no explicit requirement in the

  Standard to identify the CODM. When in 2011, the Interpretations Committee and the

  IASB considered a request to amend the Standard to require disclosure, they decided to

  defer this issue until the completion of the Post-implementation Review of IFRS 8 rather

  than through an interpretation or annual improvement.5 As noted at 7 below, the Post-

  implementation Review has been completed and in March 2017, the Board issued its

  Exposure Draft ED/2017/2 – Improvements to IFRS 8 Operating Segments – which

  proposes that entities disclose the title and description of the role of the individual or group

  which is identified as the CODM.6 In our view, it would be good practice in any event to

  disclose the individual or group identified as CODM (see examples at 3.1.2 above).

  Operating

  segments

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  5.1

  General information about reportable segments

  The factors used to identify reportable segments should be described. This would

  include an explanation of the entity’s basis of organisation, for example whether

  management has chosen to organise the entity by different products and services, by

  geographical area, by regulatory environment or by applying a combination of factors.

  The description would also indicate whether operating segments have been aggregated.

  The general information on reportable segments would include a description of the

  types of products and services from which each reportable segment derives its

  revenues. [IFRS 8.22]. The disclosures should also include a description of the sources of

  the revenue classified in the ‘all other segments’ category. [IFRS 8.16].

  In Extract 32.3 below, Daimler describes how its activities have been segmented into its

  principal business activities and specific product lines.

  Extract 32.3: Daimler AG (2017)

  NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS [extract]

  33.

  Segment reporting [extract]

  Reportable segments

  The reportable segments of the Group are Mercedes-Benz Cars, Daimler Trucks, Mercedes-Benz Vans, Daimler

  Buses and Daimler Financial Services. The segments are largely organized and managed separately according to

  nature of products and services provided, brands, distribution channels and profile of customers.

  The vehicle segments develop and manufacture passenger cars, trucks, vans and buses. The Mercedes-Benz

  Cars segment comprises premium vehicles of the Mercedes-Benz brand including the brands Mercedes-AMG

  and Mercedes-Maybach, and small cars under the smart brand, as well as the brand Mercedes me. Electric

  products will be marketed under the EQ brand in the future. Daimler Trucks distributes its trucks under the

  brand names Mercedes-Benz, Freightliner, Western Star, FUSO and BharatBenz. Furthermore, buses under the

  brands Thomas Built Buses and FUSO are included in the Daimler Trucks range of products. The vans of the

  Mercedes-Benz Vans segment are primarily sold under the brand name Mercedes-Benz and also under the

  Freightliner brand. Daimler Buses sells completely built-up buses under the brand names Mercedes-Benz and

  Setra. In addition, Daimler Buses produces and sells bus chassis. The vehicle segments also sell related spare

  parts and accessories.

  The Daimler Financial Services segment supports the sales of the Group’s vehicle segments worldwide. Its

  product portfolio primarily comprises tailored financing and leasing packages for end-customers and dealers,

  brokering of automotive insurance and banking services. The segment also provides services such as fleet

  management in Europe, which primarily takes place through the Athlon brand, which was acquired in 2016.

  Furthermore, Daimler Financial Services is active in the area of innovative mobility services, in particular under

  the brands moovel, mytaxi and car2go.

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  5.1.1

  Disclosure of how operating segments are aggregated

  IFRS 8 requires disclosure of the judgements made by management in applying the

  aggregation criteria in the Standard. This includes a brief description of the operating

  segments that have been aggregated in this way and the economic indicators that were

  considered in determining that the aggregated operating segments share similar economic

  characteristics. [IFRS 8.22(aa)]. The aggregation criteria are discussed at 3.2.1 above.

  In Extract 32.4 below, Amcor Limited describes the composition of its three reportable

  segments, Amcor Rigid Plastics, Amcor Flexibles and Other/Investments. The narrative

  explains the basis for aggregating four smaller operating segments into its Amcor

  Flexibles reporting segment.

  Extract 32.4: Amcor Limited (2017)

  Notes to the Financial Statements [extract]

  1.3 Segment

  performance [extract]

  Reportable Segment

  Operations

  Amcor Rigid Plastics

  Manufactures rigid plastic containers for a broad range of predominantly beverage and

  food products, including carbonated soft drinks, water, juices, sports drinks, milk-based

  beverages, spirits and beer, sauces, dressings, spreads and personal care items and plastic

  caps for a wide variety of applications.

  Amcor Flexibles

  This reporting segment represents the aggregation of four operating segments of which

  each manufactures flexible and film packaging for their respective industries. The

  operating segments are:

  • The Amcor Flexibles Europe, Middle East & Africa business which provides

  packaging for the food and beverage industry including confectionery, coffee, fresh

  food and dairy and pet food packaging.

  •

  The Amcor Flexibles Americas business produces flexible packaging for customers

  in the medica
l and pharmaceutical, fresh produce and snack food segments.

  • Amcor Tobacco Packaging which manufactures flexible packaging for specialty

  folding cartons for tobacco packaging and other industries.

  •

  Amcor Flexibles Asia Pacific which provides packaging for the food and beverage

  industry including confectionery, coffee, fresh food and dairy and packaging for the

  pharmaceutical and home and personal care industries.

  These operating segments share similar characteristics as they are engaged in the printing

  and packaging of fast moving consumer products. Management believe that it is

  appropriate to aggregate these four operating segments as one reporting segment due to

  the similarities in the nature of each operating segment.

  Other/Investments

  This segment holds the Group’s equity accounted investments in the associate AMVIG

  Holdings Limited (AMVIG). AMVIG is principally involved in the manufacture of

  tobacco packaging. This segment also includes the corporate function of the Group.

  Operating

  segments

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  5.2

  A measure of segment profit or loss, total assets and total

  liabilities

  For each reportable segment, an entity is required to disclose a measure of profit or loss

  for each segment. An entity is also required to disclose a measure of total assets and

  total liabilities for each reportable segment, but only if such amounts are regularly

  provided to the chief operating decision maker. [IFRS 8.23]. This ‘measure’ means segment

  profit or loss and segment assets and liabilities as defined in the information used by the

  chief operating decision maker.

  5.2.1

  Other measures of segment performance

  Entities typically use not only a measure of profit or loss, but also a combination of

  different financial and non-financial key performance indicators to assess

  performance of their operating segments and allocate resources to them. Examples

  include key measures based on capital invested like return on capital employed

  (ROCE), free cash flow or orders on hand. Since these are not measures of profit or