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IAS 14 - Segment Reporting
IAS 14 - Segment Reporting
Segment Reporting
This version includes amendments resulting from new and amended IFRSs issued up to
31 December 2004.
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CONTENTS
paragraphs
INTRODUCTION IN1–IN14
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International Accounting Standard 14 Segment Reporting (IAS 14) is set out in paragraphs
1–84. All the paragraphs have equal authority but retain the IASC format of the Standard
when it was adopted by the IASB. IAS 14 should be read in the context of its objective, the
Preface to International Financial Reporting Standards and the Framework for the Preparation and
Presentation of Financial Statements. IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors provides a basis for selecting and applying accounting policies in the absence of
explicit guidance.
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Introduction
IN1 This Standard (IAS 14 (revised)) replaces IAS 14 Reporting Financial Information by
Segment (‘the original IAS 14’). IAS 14 (revised) is effective for accounting periods
beginning on or after 1 July 1998. The major changes from the original IAS 14 are
as follows.
IN2 The original IAS 14 applied to entities whose securities are publicly traded and
other economically significant entities. IAS 14 (revised) applies to entities whose
equity or debt securities are publicly traded, including enterprises in the process
of issuing equity or debt securities in a public securities market, but not to other
economically significant entities.
IN3 The original IAS 14 required that information be reported for industry segments
and geographical segments. It provided only general guidance for identifying
industry segments and geographical segments. It suggested that internal
organisational groupings may provide a basis for determining reportable
segments, or segment reporting may require reclassification of data. IAS 14
(revised) requires that information be reported for business segments and
geographical segments. It provides more detailed guidance than the original
IAS 14 for identifying business segments and geographical segments. It requires
that an entity look to its internal organisational structure and internal reporting
system for the purpose of identifying those segments. If internal segments are
based neither on groups of related products and services nor on geography, IAS 14
(revised) requires that an entity should look to the next lower level of internal
segmentation to identify its reportable segments.
IN4 The original IAS 14 required that the same quantity of information be reported for
both industry segments and geographical segments. IAS 14 (revised) provides that
one basis of segmentation is primary and the other is secondary, with
considerably less information required to be disclosed for secondary segments.
IN5 The original IAS 14 was silent on whether segment information must be prepared
using the accounting policies adopted for the consolidated or entity financial
statements. IAS 14 (revised) requires that the same accounting policies be
followed.
IN6 The original IAS 14 had allowed differences in the definition of segment result
among entities. IAS 14 (revised) provides more detailed guidance than the original
IAS 14 as to specific items of revenue and expense that should be included in or
excluded from segment revenue and segment expense. Accordingly, IAS 14
(revised) provides for a standardised measure of segment result, but only to the
extent that items of revenue and operating expense can be directly attributed or
reasonably allocated to segments.
IN7 IAS 14 (revised) requires ‘symmetry’ in the inclusion of items in segment result
and in segment assets. If, for example, segment result reflects depreciation
expense, the depreciable asset must be included in segment assets. The original
IAS 14 was silent on this matter.
IN8 The original IAS 14 was silent on whether segments deemed too small for separate
reporting could be combined with other segments or excluded from all reportable
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segments. IAS 14 (revised) provides that small internally reported segments that
are not required to be separately reported may be combined with each other if
they share a substantial number of the factors that define a business segment or
geographical segment, or they may be combined with a similar significant
segment for which information is reported internally if certain conditions are
met.
IN9 The original IAS 14 was silent on whether geographical segments should be based
on where the entity’s assets are located (the origin of its sales) or on where its
customers are located (the destination of its sales). IAS 14 (revised) requires that,
whichever is the basis of an entity’s geographical segments, several items of data
must be presented on the other basis if significantly different.
IN10 The original IAS 14 required four principal items of information for both industry
segments and geographical segments:
(b) cost of property, plant, equipment, and intangible assets acquired during the
period;
(e) the entity’s share of the profit or loss of an associate, joint venture, or other
investment accounted for under the equity method if substantially all of the
associate’s operations are within only that segment, and the amount of the
related investment.
For an entity’s secondary basis of segment reporting, IAS 14 (revised) drops the
original IAS 14 requirement for segment result and replaces it with the cost of
property, plant, equipment, and intangible assets acquired during the period.
IN11 The original IAS 14 was silent on whether prior period segment information
presented for comparative purposes should be restated for a material change in
segment accounting policies. IAS 14 (revised) requires restatement unless it is
impracticable to do so.
IN12 IAS 14 (revised) requires that if total revenue from external customers for all
reportable segments combined is less than 75 per cent of total entity revenue,
then additional reportable segments should be identified until the 75 per cent
level is reached.
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IN13 The original IAS 14 allowed a different method of pricing inter-segment transfers
to be used in segment data than was actually used to price the transfers. IAS 14
(revised) requires that inter-segment transfers be measured on the basis that the
entity actually used to price the transfers.
IN14 IAS 14 (revised) requires disclosure of revenue for any segment not deemed
reportable because it earns a majority of its revenue from sales to other segments
if that segment’s revenue from sales to external customers is 10 per cent or more
of total entity revenue. The original IAS 14 had no comparable requirement.
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Objective
The objective of this Standard is to establish principles for reporting financial
information by segment—information about the different types of products and
services an entity produces and the different geographical areas in which it
operates—to help users of financial statements:
(a) better understand the entity’s past performance;
Scope
1 This Standard shall be applied in complete sets of published financial
statements that comply with International Financial Reporting Standards.
4 If an entity whose securities are not publicly traded prepares financial statements
that comply with International Financial Reporting Standards, that entity is
encouraged to disclose financial information by segment voluntarily.
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Definitions
(d) the methods used to distribute the products or provide the services;
and
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11 A single business segment does not include products and services with
significantly differing risks and returns. While there may be dissimilarities with
respect to one or several of the factors in the definition of a business segment, the
products and services included in a single business segment are expected to be
similar with respect to a majority of the factors.
13 The predominant sources of risks affect how most entities are organised and
managed. Therefore, paragraph 27 of this Standard provides that an entity’s
organisational structure and its internal financial reporting system is the basis for
identifying its segments. The risks and returns of an entity are influenced both by
the geographical location of its operations (where its products are produced or where
its service delivery activities are based) and also by the location of its markets (where
its products are sold or services are rendered). The definition allows geographical
segments to be based on either:
(a) the location of an entity’s production or service facilities and other assets; or
(b) the location of its markets and customers.
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Segment accounting policies are the accounting policies adopted for preparing
and presenting the financial statements of the consolidated group or
entity as well as those accounting policies that relate specifically to
segment reporting.
18 In some cases, however, a revenue, expense, asset, or liability may have been
allocated to segments for internal financial reporting purposes on a basis that is
understood by entity management but that could be deemed subjective, arbitrary,
or difficult to understand by external users of financial statements. Such an
allocation would not constitute a reasonable basis under the definitions of
segment revenue, segment expense, segment assets, and segment liabilities in this
Standard. Conversely, an entity may choose not to allocate some item of revenue,
expense, asset, or liability for internal financial reporting purposes, even though a
reasonable basis for doing so exists. Such an item is allocated pursuant to the
definitions of segment revenue, segment expense, segment assets, and segment
liabilities in this Standard.
19 Examples of segment assets include current assets that are used in the operating
activities of the segment, property, plant, and equipment, assets that are the
subject of finance leases (IAS 17 Leases), and intangible assets. If a particular item
of depreciation or amortisation is included in segment expense, the related asset
is also included in segment assets. Segment assets do not include assets used for
general entity or head-office purposes. Segment assets include operating assets
shared by two or more segments if a reasonable basis for allocation exists.
Segment assets include goodwill that is directly attributable to a segment or can
be allocated to a segment on a reasonable basis, and segment expense includes any
impairment losses recognised for goodwill.
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22 Some guidance for cost allocation can be found in other Standards. For example,
paragraphs 11–20 of IAS 2 Inventories (as revised in 2003) provide guidance on
attributing and allocating costs to inventories, and paragraphs 16–21 of IAS 11
Construction Contracts provide guidance on attributing and allocating costs to
contracts. That guidance may be useful in attributing or allocating costs to
segments.
23 IAS 7 Cash Flow Statements provides guidance as to whether bank overdrafts should
be included as a component of cash or should be reported as borrowings.
24 Segment revenue, segment expense, segment assets, and segment liabilities are
determined before intragroup balances and intragroup transactions are
eliminated as part of the consolidation process, except to the extent that such
intragroup balances and transactions are between group entities within a single
segment.
25 While the accounting policies used in preparing and presenting the financial
statements of the entity as a whole are also the fundamental segment accounting
policies, segment accounting policies include, in addition, policies that relate
specifically to segment reporting, such as identification of segments, method of
pricing inter-segment transfers, and basis for allocating revenues and expenses to
segments.
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28 For most entities, the predominant source of risks and returns determines how
the entity is organised and managed. An entity’s organisational and management
structure and its internal financial reporting system normally provide the best
evidence of the entity’s predominant source of risks and returns for purpose of its
segment reporting. Therefore, except in rare circumstances, an entity will report
segment information in its financial statements on the same basis as it reports
internally to top management. Its predominant source of risks and returns
becomes its primary segment reporting format. Its secondary source of risks and
returns becomes its secondary segment reporting format.
30 In some cases, an entity’s organisation and internal reporting may have developed
along lines unrelated either to differences in the types of products and services
they produce or to the geographical areas in which they operate. For instance,
internal reporting may be organised solely by legal entity, resulting in internal
segments composed of groups of unrelated products and services. In those
unusual cases, the internally reported segment data will not meet the objective of
this Standard. Accordingly, paragraph 27(b) requires the directors and
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management of the entity to determine whether the entity’s risks and returns are
more product/service driven or geographically driven and to choose either
business segments or geographical segments as the entity’s primary basis of
segment reporting. The objective is to achieve a reasonable degree of
comparability with other entities enhance understandability of the resulting
information, and meet the expressed needs of investors, creditors, and others for
information about product/service-related and geographically-related risks and
returns.
(a) if one or more of the segments reported internally to the directors and
management is a business segment or a geographical segment based
on the factors in the definitions in paragraph 9 but others are not,
subparagraph (b) below shall be applied only to those internal
segments that do not meet the definitions in paragraph 9 (that is, an
internally reported segment that meets the definition shall not be
further segmented);
(b) for those segments reported internally to the directors and
management that do not satisfy the definitions in paragraph 9,
management of the entity shall look to the next lower level of internal
segmentation that reports information along product and service
lines or geographical lines, as appropriate under the definitions in
paragraph 9; and
(c) if such an internally reported lower-level segment meets the definition
of business segment or geographical segment based on the factors in
paragraph 9, the criteria in paragraphs 34 and 35 for identifying
reportable segments shall be applied to that segment.
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33 Under this Standard, most entities will identify their business and geographical
segments as the organisational units for which information is reported to the
board of directors (particularly the supervisory non-management directors, if any)
and to the chief executive officer (the senior operating decision maker, which in
some cases may be a group of several people) for the purpose of evaluating each
unit’s past performance and for making decisions about future allocations of
resources. And even if an entity must apply paragraph 32 because its internal
segments are not along product/service or geographical lines, it will look to the
next lower level of internal segmentation that reports information along product
and service lines or geographical lines rather than construct segments solely for
external reporting purposes. This approach of looking to an entity’s
organisational and management structure and its internal financial reporting
system to identify the entity’s business and geographical segments for external
reporting purposes is sometimes called the ‘management approach’, and the
organisational components for which information is reported internally are
sometimes called ‘operating segments’.
Reportable segments
34 Two or more internally reported business segments or geographical
segments that are substantially similar may be combined as a single
business segment or geographical segment. Two or more business
segments or geographical segments are substantially similar only if:
(a) they exhibit similar long-term financial performance; and
(b) they are similar in all of the factors in the appropriate definition in
paragraph 9.
(c) its assets are 10 per cent or more of the total assets of all segments.
(b) if not designated as a reportable segment despite its size, that segment
may be combined into a separately reportable segment with one or
more other similar internally reported segment(s) that are also below
all of the thresholds of significance in paragraph 35 (two or more
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38 The 10 per cent thresholds in this Standard are not intended to be a guide for
determining materiality for any aspect of financial reporting other than
identifying reportable business and geographical segments.
40 This Standard encourages, but does not require, the voluntary reporting of
vertically integrated activities as separate segments, with appropriate description
including disclosure of the basis of pricing inter-segment transfers as required by
paragraph 75.
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45 There is a presumption that the accounting policies that the directors and
management of an entity have chosen to use, in preparing its consolidated or
entity-wide financial statements, are those that the directors and management
believe are the most appropriate for external reporting purposes. Since the
purpose of segment information is to help users of financial statements better
understand and make more informed judgements about the entity as a whole, this
Standard requires the use, in preparing segment information, of the accounting
policies that the directors and management have chosen. That does not mean,
however, that the consolidated or entity accounting policies are to be applied to
reportable segments as if the segments were separate stand-alone reporting
entities. A detailed calculation done in applying a particular accounting policy at
the entity-wide level may be allocated to segments if there is a reasonable basis for
doing so. Pension calculations, for example, often are done for an entity as a
whole, but the entity-wide figures may be allocated to segments based on salary
and demographic data for the segments.
46 This Standard does not prohibit the disclosure of additional segment information
that is prepared on a basis other than the accounting policies adopted for the
consolidated or entity financial statements provided that (a) the information is
reported internally to the board of directors and the chief executive officer for
purposes of making decisions about allocating resources to the segment and
assessing its performance and (b) the basis of measurement for this additional
information is clearly described.
47 Assets that are jointly used by two or more segments shall be allocated to
segments if, and only if, their related revenues and expenses also are
allocated to those segments.
48 The way in which asset, liability, revenue, and expense items are allocated to
segments depends on such factors as the nature of those items, the activities
conducted by the segment, and the relative autonomy of that segment. It is not
possible or appropriate to specify a single basis of allocation that shall be adopted
by all entities. Nor is it appropriate to force allocation of entity asset, liability,
revenue, and expense items that relate jointly to two or more segments, if the only
basis for making those allocations is arbitrary or difficult to understand. At the
same time, the definitions of segment revenue, segment expense, segment assets,
and segment liabilities are interrelated, and the resulting allocations shall be
consistent. Therefore, jointly used assets are allocated to segments if, and only if,
their related revenues and expenses also are allocated to those segments.
For example, an asset is included in segment assets if, and only if, the related
depreciation or amortisation is deducted in measuring segment result.
Disclosure
49 Paragraphs 50–67 specify the disclosures required for reportable segments for an
entity’s primary segment reporting format. Paragraphs 68–72 identify the
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52A An entity shall restate segment results in prior periods presented in the
financial statements so that the disclosures required by paragraph 52
relating to discontinued operations relate to all operations that had been
classified as discontinued at the balance sheet date of the latest period
presented.
53 If an entity can compute segment profit or loss or some other measure of segment
profitability other than segment result without arbitrary allocations, reporting of
such amount(s) is encouraged in addition to segment result, appropriately
described. If that measure is prepared on a basis other than the accounting
policies adopted for the consolidated or entity financial statements, the entity will
include in its financial statements a clear description of the basis of measurement.
55 An entity shall disclose the total carrying amount of segment assets for
each reportable segment.
57 An entity shall disclose the total cost incurred during the period to acquire
segment assets that are expected to be used during more than one period
(property, plant, equipment, and intangible assets) for each reportable
segment. While this sometimes is referred to as capital additions or capital
expenditure, the measurement required by this principle shall be on an
accrual basis, not a cash basis.
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60 IAS 1 requires that when items of income and expense are material, their nature
and amount shall be disclosed separately. IAS 1 offers a number of examples,
including write-downs of inventories and property, plant, and equipment,
provisions for restructurings, disposals of property, plant, and equipment and
long-term investments, discontinued operations, litigation settlements, and
reversals of provisions. Paragraph 59 is not intended to change the classification
of any such items or to change the measurement of such items. The disclosure
encouraged by that paragraph, however, does change the level at which the
significance of such items is evaluated for disclosure purposes from the entity
level to the segment level.
61 An entity shall disclose, for each reportable segment, the total amount of
significant non-cash expenses, other than depreciation and amortisation
for which separate disclosure is required by paragraph 58, that were
included in segment expense and, therefore, deducted in measuring
segment result.
62 IAS 7 requires that an entity present a cash flow statement that separately reports
cash flows from operating, investing, and financing activities. IAS 7 notes that
disclosing cash flow information for each reportable industry and geographical
segment is relevant to understanding the entity’s overall financial position,
liquidity, and cash flows. IAS 7 encourages the disclosure of such information.
This Standard also encourages the segment cash flow disclosures that are
encouraged by IAS 7. Additionally, it encourages disclosure of significant
non-cash revenues that were included in segment revenue and, therefore, added
in measuring segment result.
63 An entity that provides the segment cash flow disclosures that are
encouraged by IAS 7 need not also disclose depreciation and amortisation
expense pursuant to paragraph 58 or non-cash expenses pursuant to
paragraph 61.
64 An entity shall disclose, for each reportable segment, the aggregate of the
entity’s share of the profit or loss of associates, joint ventures, or other
investments accounted for under the equity method if substantially all of
those associates’ operations are within that single segment.
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customers), it shall also report the following segment information for each
business segment whose revenue from sales to external customers is 10 per
cent or more of total entity revenue from sales to all external customers or
whose segment assets are 10 per cent or more of the total assets of all
business segments:
(a) segment revenue from external customers;
(b) the total carrying amount of segment assets; and
(c) the total cost incurred during the period to acquire segment assets
that are expected to be used during more than one period (property,
plant, equipment, and intangible assets).
(b) the total cost incurred during the period to acquire segment assets
that are expected to be used during more than one period (property,
plant, equipment, and intangible assets) by location of the assets.
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77 Changes in accounting policies applied by the entity are dealt with in IAS 8. IAS 8
requires that changes in accounting policy shall be made only if required by a
Standard or Interpretation, or if the change will result in reliable and more
relevant information about transactions, other events or conditions in the
financial statements of the entity.
78 Changes in accounting policies applied at the entity level that affect segment
information are dealt with in accordance with IAS 8. Unless a new Standard or
Interpretation specifies otherwise, IAS 8 requires that:
(b) if retrospective application is not practicable for all periods presented, the
new accounting policy shall be applied retrospectively from the earliest
practicable date; and
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81 An entity shall indicate the types of products and services included in each
reported business segment and indicate the composition of each reported
geographical segment, both primary and secondary, if not otherwise
disclosed in the financial statements or elsewhere in the financial report.
82 To assess the impact of such matters as shifts in demand, changes in the price of
inputs or other factors of production, and the development of alternative products
and processes on a business segment, it is necessary to know the activities
encompassed by that segment. Similarly, to assess the impact of changes in the
economic and political environment on the risks and rates of returns of a
geographical segment, it is important to know the composition of that
geographical segment.
Effective date
84 This Standard becomes operative for financial statements covering periods
beginning on or after 1 July 1998. Earlier application is encouraged. If an
entity applies this Standard for financial statements covering periods
beginning before 1 July 1998 instead of the original IAS 14, the entity shall
disclose that fact. If financial statements include comparative information
for periods prior to the effective date or earlier voluntary adoption of this
Standard, restatement of segment data included therein to conform to the
provisions of this Standard is required unless it is not practicable to do so,
in which case the entity shall disclose that fact.
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Appendix A
Segment definition decision tree
This appendix accompanies, but is not part of, IAS 14. Its purpose is to illustrate the application of
paragraphs 27–43.
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Appendix B
Illustrative segment disclosures
This appendix accompanies, but is not part of, IAS 14.
The schedule and related note presented in this appendix illustrate the segment disclosures
that this Standard would require for a diversified multinational business entity. This
example is intentionally complex to illustrate most of the provisions of this Standard.
For illustrative purposes, the example presents comparative data for two years. Segment
data is required for each year for which a complete set of financial statements is presented.
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Result
Segment result 20 17 9 7 2 1 0 0 (1) (1) 30 24
A
Interest expense (4) (4)
Interest income 2 3
Share of profits of associates 6 5 2 2 8 7
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Income taxes (7) (4)
Profit 22 17
Other Information
Division: ias14
Segment assets 54 50 34 30 10 10 10 9 108 99
F
Investment in equity method associates 20 16 12 10 32 26
Unallocated corporate assets 35 30
Consolidated total assets 175 155
Segment liabilities 25 15 8 11 8 8 1 1 42 35
Unallocated corporate liabilities 40 55
Sequential 27
Consolidated total liabilities 82 90
Capital expenditure 12 10 3 5 5 4 3
Depreciation 9 7 9 7 5 3 3 4
Non–cash expenses other than depreciation 8 2 7 3 2 2 2 1
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IAS 14
Sales by market: the following table shows the distribution of the Company’s consolidated
sales by geographical market, regardless of where the goods were produced:
Sales revenue by
geographical market
20X2 20X1
United Kingdom 19 22
Other European Union countries 30 31
Canada and the United States 28 21
Mexico and South America 6 2
Southeast Asia (principally Japan and Taiwan) 18 14
101 90
Assets and additions to property, plant, equipment, and intangible assets by geographical
area: the following tables show the carrying amount of segment assets and additions to
property, plant, equipment, and intangible assets by geographical area in which the assets
are located:
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United Kingdom 72 78 8 5
Other European Union countries 47 37 5 4
Canada and the United States 34 20 4 3
Indonesia 22 20 7 6
175 155 24 18
Segment revenue and expense: in Belgium, paper and office products are manufactured in
combined facilities and are sold by a combined sales force. Joint revenues and expenses are
allocated to the two business segments. All other segment revenue and expense is directly
attributable to the segments.
Segment assets and liabilities: segment assets include all operating assets used by a segment
and consist principally of operating cash, receivables, inventories and property, plant and
equipment, net of allowances and provisions. While most such assets can be directly
attributed to individual segments, the carrying amount of certain assets used jointly by two
or more segments is allocated to the segments on a reasonable basis. Segment liabilities
include all operating liabilities and consist principally of accounts, wages, and taxes
currently payable and accrued liabilities. Segment assets and liabilities do not include
deferred income taxes.
Inter-segment transfers: segment revenue, segment expenses and segment result include
transfers between business segments and between geographical segments. Such transfers
are accounted for at competitive market prices charged to unaffiliated customers for
similar goods. Those transfers are eliminated in consolidation.
Unusual item: sales of office products to external customers in 20X2 were adversely affected
by a lengthy strike of transportation workers in the United Kingdom, which interrupted
product shipments for approximately four months. The Company estimates that sales of
office products were approximately half of what they would otherwise have been during the
four-month period.
Investment in equity method associates: the Company owns 40 per cent of the capital stock
of EuroPaper Ltd, a specialist paper manufacturer with operations principally in Spain and
the United Kingdom. The investment is accounted for by the equity method. Although the
investment and the Company’s share of EuroPaper’s net profit are excluded from segment
assets and segment revenue, they are shown separately in conjunction with data for the
paper products segment. The Company also owns several small equity method investments
in Canada and the United States whose operations are dissimilar to any of the three
business segments.
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Appendix C
Summary of required disclosure
This appendix accompanies, but is not part of, IAS 14. Its purpose is to summarise the disclosures
required by paragraphs 49–83 for each of the three possible primary segment reporting formats.
[¶xx] refers to paragraph xx in the Standard.
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– – Carrying amount of
segment assets by
location of assets if
different from location of
customers [¶72]
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Revenue for any business Revenue for any business Revenue for any business
or geographical segment or geographical segment or geographical segment
whose external revenue is whose external revenue is whose external revenue is
more than 10 per cent of more than 10 per cent of more than 10 per cent of
entity revenue but that is entity revenue but that is entity revenue but that is
not a reportable segment not a reportable segment not a reportable segment
because a majority of its because a majority of its because a majority of its
revenue is from internal revenue is from internal revenue is from internal
transfers [¶74] transfers [¶74] transfers [¶74]
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