IFRS 8 Operating Segments requires an entity to disclose information that enables users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates (IFRS 8.1). It is aimed mainly at entities whose debt or equity instruments are traded in a public market (IFRS 8.2). Its central idea is the management approach: segments are reported as management sees them in its internal reporting, using the measures the chief operating decision maker uses (IFRS 8.5, 25). IFRS 8 was issued in November 2006 to replace IAS 14 Segment Reporting (IFRS Foundation: IFRS 8).
Scope
IFRS 8 applies to (IFRS 8.2):
- separate or individual financial statements of an entity whose debt or equity instruments are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets), or that files, or is in the process of filing, its financial statements with a securities commission or other regulator in order to issue any class of instruments in a public market; and
- consolidated financial statements of a group whose parent meets the same conditions.
If a financial report contains both the parent's consolidated statements and its separate statements, segment information is required only in the consolidated statements (IFRS 8.4). An entity outside the scope that voluntarily discloses segment information not complying with IFRS 8 must not describe it as segment information (IFRS 8.3).
Operating segments and the chief operating decision maker
An operating segment is a component of an entity with three characteristics (IFRS 8.5):
- it engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses from transactions with other components of the same entity;
- its operating results are regularly reviewed by the chief operating decision maker (CODM) to decide on resources to allocate to it and to assess its performance; and
- discrete financial information is available for it.
A start-up operation can be an operating segment before it earns revenues (IFRS 8.5). Not every part of an entity is a segment: a corporate headquarters or some functional departments may earn no revenues, or only incidental ones, and post-employment benefit plans are not operating segments (IFRS 8.6).
The CODM is a function, not necessarily a manager with a specific title: allocating resources to, and assessing the performance of, the operating segments. It is often the chief executive officer or chief operating officer, but it may be a group of executive directors or others (IFRS 8.7).
When internal reports present activities in more than one way, other factors may identify the segments: the nature of each component's activities, the existence of managers responsible for them and the information presented to the board (IFRS 8.8). In a matrix organisation, where some managers answer for product lines and others for geographical areas, the entity picks the set of components by reference to the core principle (IFRS 8.10).
Aggregating operating segments
Two or more operating segments may be aggregated into one if aggregation is consistent with the core principle, the segments have similar economic characteristics (for example, similar long-term average gross margins), and they are similar in each of the following (IFRS 8.12):
- the nature of the products and services;
- the nature of the production processes;
- the type or class of customer;
- the methods used to distribute products or provide services; and
- if applicable, the nature of the regulatory environment, such as banking, insurance or public utilities.
The entity discloses the judgements management made in applying these criteria, including a brief description of the aggregated segments and the economic indicators assessed (IFRS 8.22).
Quantitative thresholds: when is a segment reportable?
An entity reports separately on each operating segment that meets any of three thresholds (IFRS 8.13):
| Test | Threshold |
|---|---|
| Revenue | Segment revenue, external and intersegment, is 10% or more of the combined internal and external revenue of all operating segments |
| Profit or loss | The absolute amount of segment profit or loss is 10% or more of the greater of the combined profit of all profitable segments and the combined loss of all loss-making segments |
| Assets | Segment assets are 10% or more of the combined assets of all operating segments |
A segment below all three may still be reported if management believes the information would be useful (IFRS 8.13). Small segments with similar economic characteristics that share a majority of the aggregation criteria may also be combined into a reportable segment (IFRS 8.14).
Then comes the 75% test: if the total external revenue of the reportable segments is less than 75% of the entity's revenue, further segments are identified as reportable, even if they miss the thresholds, until at least 75% is covered (IFRS 8.15). Everything else goes into an "all other segments" category, with a description of its sources of revenue (IFRS 8.16).
Three supporting rules:
- A segment reportable in the previous period continues to be reported if management judges it to be of continuing significance (IFRS 8.17).
- When a segment becomes reportable in the current period, comparatives are restated to show it separately, unless the information is unavailable and the cost to develop it would be excessive (IFRS 8.18).
- Once reportable segments exceed ten, the entity should consider whether a practical limit has been reached (IFRS 8.19).
Worked example: applying the thresholds
The numbers are illustrative, in thousands, for an entity with six operating segments and no revenue outside them:
| Segment | External revenue | Intersegment revenue | Total revenue | Profit (loss) | Assets | Meets a 10% test? |
|---|---|---|---|---|---|---|
| A | 2,400 | 0 | 2,400 | 480 | 3,600 | Yes, all three |
| B | 500 | 2,000 | 2,500 | 240 | 2,400 | Yes, all three |
| C | 1,000 | 0 | 1,000 | 120 | 1,200 | Yes, all three |
| D | 800 | 0 | 800 | 60 | 800 | No |
| E | 800 | 0 | 800 | 50 | 700 | No |
| F | 700 | 0 | 700 | (90) | 500 | No |
| Total | 6,200 | 2,000 | 8,200 | Profits 950, losses 90 | 9,200 |
- Revenue threshold = 10% × 8,200 = 820. A, B and C meet it. Note B: most of its revenue is intersegment, but it still counts for this test (IFRS 8.13).
- Profit or loss threshold = 10% × 950 = 95, because combined profits (950) exceed combined losses (90). F's loss, in absolute terms (90), falls just short.
- Assets threshold = 10% × 9,200 = 920. Only A, B and C meet it.
- 75% test: the external revenue of A, B and C is 3,900, or 62.9% of the entity's revenue of 6,200 — below 75%. Management adds another segment, say D, bringing the total to 4,700, or 75.8% (IFRS 8.15).
- E and F go into "all other segments" (IFRS 8.16).
So there are four reportable segments: A, B, C and D. IFRS 8 does not say which segment to add to reach 75%; that choice is management's.
What is disclosed for each reportable segment?
General information: the factors used to identify the segments (for example, organisation by products and services, geographical areas or regulatory environments), whether segments have been aggregated, and the types of products and services from which each segment earns revenue (IFRS 8.22).
Profit or loss, assets and liabilities (IFRS 8.23):
- a measure of profit or loss for each segment — always required;
- total assets and liabilities only if those amounts are regularly provided to the CODM; and
- specified amounts if they are included in the measure of segment profit or loss reviewed by the CODM or are otherwise regularly provided to it: revenue from external customers, intersegment revenue, interest revenue, interest expense, depreciation and amortisation, material items of income and expense, the share of profit or loss of equity-accounted associates and joint ventures, income tax expense or income, and material non-cash items.
Interest revenue is reported separately from interest expense unless most of the segment's revenue is interest and the CODM relies primarily on net interest revenue (IFRS 8.23). The investment in equity-accounted associates and joint ventures and additions to non-current assets are disclosed if they are included in the measure of segment assets reviewed by the CODM or regularly provided to it (IFRS 8.24).
Measurement: each item is reported at the measure provided to the CODM, even if it differs from the measurement basis of the financial statements (IFRS 8.25). If the CODM uses more than one measure, the one closest to the financial statements' measurement principles is reported (IFRS 8.26). The entity explains its measurement bases, such as the accounting for intersegment transactions and the reasons for differences from entity amounts (IFRS 8.27).
Reconciliations: total segment revenue to entity revenue; total segment profit or loss to entity profit or loss before tax and discontinued operations; total segment assets and liabilities, if reported; and every other material item. Material reconciling items are separately identified and described (IFRS 8.28).
Changes in structure: if a reorganisation changes the reportable segments, prior-period information is restated unless it is unavailable and too costly to develop; if it is not restated, current-year information is given on both the old and new bases (IFRS 8.29–30).
Entity-wide disclosures
These apply to every entity within scope, including one with a single reportable segment, unless the information is already given in the segment disclosures (IFRS 8.31):
- Products and services: revenue from external customers for each product or service, or each group of similar ones (IFRS 8.32).
- Geographical areas: external revenue and non-current assets (other than financial instruments, deferred tax assets, post-employment benefit assets and rights under insurance contracts), split between the country of domicile and all foreign countries in total, with a material individual foreign country shown separately (IFRS 8.33).
- Major customers: if revenue from a single external customer is 10% or more of the entity's revenue, the entity discloses that fact, the total revenue from each such customer and the segments reporting it; it need not name the customer. A group of entities known to be under common control counts as a single customer (IFRS 8.34).
What is new in IFRS 8?
- Post-implementation Review: the review concluded that IFRS 8 had, overall, achieved its objectives. The International Accounting Standards Board (IASB) published an exposure draft of improvements in March 2017, then decided not to proceed and published a project summary in February 2019 (IFRS Foundation: Improvements to IFRS 8).
- IFRS Interpretations Committee agenda decision (July 2024): the specified amounts in paragraph 23 must be disclosed for each segment when they are included in the measure of segment profit or loss reviewed by the CODM, even if not separately provided to it, or are regularly provided to the CODM, even if not included in that measure. Paragraph 23(f) does not require every item of income and expense by segment; materiality is judged in the context of the financial statements as a whole (IFRS Foundation: agenda decision).
- IFRS 18 Presentation and Disclosure in Financial Statements: replaces IAS 1 for annual periods beginning on or after 1 January 2027 and makes consequential amendments to IFRS 8 (IFRS Foundation: changes in the 2026 edition). Under IFRS 18, "material items of income and expense" in paragraph 23(f) refer to paragraph 42 of IFRS 18 instead of paragraph 97 of IAS 1, which is why the Committee updated its agenda decision in January 2026 (IFRS Foundation: updated agenda decision).
Useful links
- Segment information in interim reports: Interim Financial Reports (IAS 34).
- The segment in which a held-for-sale asset is presented: IFRS 5 Assets Held for Sale and Discontinued Operations.
- Practical models for several other Standards: the full IFRS bundle.
Sources
- IFRS Foundation: IFRS 8 Operating Segments. References in brackets are to paragraphs of the Standard.
- IFRS Foundation: Improvements to IFRS 8 Operating Segments (completed project).
- IFRS Foundation, IFRS Interpretations Committee: Agenda decision Disclosure of Revenues and Expenses for Reportable Segments (July 2024) and its January 2026 update.
- IFRS Foundation: Changes in this edition (2026).