Library / Technical Accounting Manual: IFRS, IAS and Ind AS Equivalents

IFRS 8 - Operating Segments

Indian equivalent: Ind AS 108 - Operating Segments

Objective and scope

IFRS 8 requires larger listed companies to break their results down by 'operating segment' - the different business lines or regions management actually runs - so investors can see which parts of a diversified group make (or lose) money, not just the consolidated total.

Core principle

A single group profit figure can hide a thriving division subsidising a failing one. IFRS 8 uses the 'management approach': report segments the same way management internally reviews the business, so external readers see the company through the eyes of those who run it.

Defined terms and technical terminology

Term	Technical meaning
Operating segment	A component of the entity that earns revenues and incurs expenses, whose results are regularly reviewed by the chief operating decision maker, and for which discrete financial information exists.
Chief operating decision maker (CODM)	The function (often the CEO or board) that allocates resources and assesses performance of segments.
Reportable segment	A segment that crosses the size thresholds (generally 10% of revenue, profit, or assets) and must be reported separately.
Management approach	Reporting segments based on internal management reporting, not a separate external structure.

Application and worked illustrations

The management approach

Rather than invent a reporting structure, IFRS 8 says: show the business as management sees it. The segments reported externally are the ones the CODM actually uses internally to allocate resources and judge performance. Segment figures are reported on the same basis used internally - even if that differs from IFRS measurement - with a reconciliation back to the group totals.

Which segments must be reported

A segment is reportable if it meets any 10% threshold: its revenue (internal + external) is ≥10% of all segments' combined revenue; or its reported profit/loss is ≥10% of the greater of total segment profits or total segment losses; or its assets are ≥10% of all segments' assets. Reported segments must together cover at least 75% of external revenue; smaller ones are grouped as 'all other segments'.

Worked example

A conglomerate has four divisions: Steel (revenue ₹500 cr), Cement (₹300 cr), Textiles (₹150 cr) and Software (₹50 cr), total ₹1,000 cr. Steel, Cement and Textiles each exceed 10% (₹100 cr) → reportable separately. Software (₹50 cr, 5%) falls below the threshold and is grouped under 'all other segments'. The reported segments cover ₹950 cr = 95% of revenue, comfortably above 75%. For each segment the company discloses revenue, profit, assets and key items, plus a reconciliation to group totals.

Common mistake: creating segments for external reporting that differ from how management actually reviews the business. IFRS 8 requires the internal view.

IND AS LINK

Ind AS 108 aligns with IFRS 8 and applies to companies whose equity/debt is publicly traded. It replaced the older AS 17 'two-format' (business + geographic) approach with the single management approach.

Further worked illustrations

Extra numeric example - aggregating similar segments

A company has five nearly-identical regional bakeries, each below the 10% threshold. IFRS 8 permits aggregating operating segments only if they have similar economic characteristics and are similar in products, production, customers, distribution and regulation. If the five bakeries meet those tests, they can be combined into one reportable 'Bakery' segment - but a bakery and a software arm could never be aggregated.

INDIAN REGULATORY CONTEXT

Indian conglomerates (think diversified groups spanning steel, cement, IT and finance) use Ind AS 108 segment reporting so investors can see which arm drives profit. The management approach means the segments shown are exactly those the group's leadership reviews internally - often revealing that one glamorous division is subsidised by a dull but cash-rich one.

TECHNICAL EDGE CASE

Even if a company has only one operating segment, IFRS 8 still bites: if revenue from a single external customer is 10% or more of total revenue, the company must disclose that fact and the amount (though not the customer's name). So a supplier heavily dependent on one big buyer can't hide that dependency behind a simple one-segment structure.