Key Points
- Only entities with publicly traded securities (or those in the process of filing) fall within the scope of IFRS 8.
- The chief operating decision maker's internal reports define the segments, not the entity's legal or geographic structure.
- A segment is reportable when it exceeds any one of the 10% quantitative thresholds for revenue, profit or loss, or assets.
- Reportable segments must collectively represent at least 75% of the entity's external revenue.
What is Segment Reporting (IFRS 8)?
IFRS 8.5 defines an operating segment through three characteristics: it engages in business activities from which it may earn revenues and incur expenses, its operating results are regularly reviewed by the entity's chief operating decision maker (CODM), and discrete financial information is available for it. The standard adopts a management approach. The segments an entity reports externally must match the segments the CODM uses internally to allocate resources and assess performance (IFRS 8.5(b)). The auditor does not choose the segments. Management does, and the auditor tests whether the reported segments genuinely reflect the CODM's internal reporting.
IFRS 8.13 sets the three quantitative thresholds for reportable status. A segment qualifies when its reported revenue (including intersegment sales), its reported profit or loss in absolute terms, or its assets equal or exceed 10% of the combined corresponding total. After applying these thresholds, IFRS 8.15 requires the entity to verify that reportable segments together account for at least 75% of external revenue. If they do not, the entity must identify additional segments until the 75% floor is met.
Worked example: Schafer Elektrotechnik AG
Client: German electronics company, FY2025, consolidated revenue EUR 310M, IFRS reporter. Schafer's CODM (the management board) receives monthly reports for four divisions: Industrial Automation (IA), Consumer Electronics (CE), Lighting Solutions (LS), and Corporate Services (CS).
Step 1 — Identify operating segments
Each division earns revenue and incurs expenses, the management board reviews results at the division level monthly, and Schafer's management reporting system produces a discrete income statement and asset schedule for each division. All four divisions meet the IFRS 8.5 definition.
Step 2 — Apply the 10% quantitative thresholds
Schafer's combined figures are: total segment revenue (including intersegment) EUR 326M, combined absolute segment profit/loss EUR 39M, total segment assets EUR 280M. The thresholds are EUR 32.6M revenue, EUR 3.9M profit/loss, and EUR 28M assets.
| Division | Revenue | Profit/(loss) | Assets | Reportable? |
|---|---|---|---|---|
| Industrial Automation | EUR 168M | EUR 22M | EUR 145M | Yes (all three) |
| Consumer Electronics | EUR 104M | EUR 11M | EUR 88M | Yes (all three) |
| Lighting Solutions | EUR 41M | EUR 4.2M | EUR 35M | Yes (all three) |
| Corporate Services | EUR 13M | (EUR 1.8M) | EUR 12M | No (none met) |
Step 3 — Test the 75% external revenue floor
The three reportable segments generate external revenue of EUR 158M (IA) + EUR 98M (CE) + EUR 38M (LS) = EUR 294M. External revenue totals EUR 310M. The reportable segments represent 94.8% of external revenue, exceeding the 75% floor.
Step 4 — Verify reconciliation
IFRS 8.28 requires a reconciliation of total segment revenue, profit or loss, and assets to the entity's corresponding consolidated totals. Corporate Services revenue of EUR 13M (entirely intersegment) and its EUR 1.8M loss are included in the "all other segments" category. Reconciling items include intersegment elimination of EUR 16M and corporate overhead reallocation of EUR 2.1M.
Conclusion: Schafer reports three operating segments with a fourth division aggregated into "all other segments," and the approach is defensible because the segmentation mirrors the CODM's actual internal reporting and the quantitative thresholds and 75% floor test are both documented.
Why it matters in practice
- The FRC's 2022/23 annual review of corporate reporting found that entities frequently failed to disclose the CODM's identity and the factors used to identify operating segments. IFRS 8.22(a) requires disclosure of the factors used to identify reportable segments, including whether segments have been aggregated. Auditors who accept a generic note stating "the board reviews segment performance" without specifying which board-level role acts as the CODM leave a gap that regulators flag.
- Teams often accept management's segment identification at face value without comparing the reported segments to the internal reporting package. When the CODM receives reports at a more granular level than the segments disclosed externally, the entity may be aggregating segments under IFRS 8.12 without documenting the aggregation criteria. ISA 500.9 requires the auditor to evaluate whether audit evidence is consistent with information from other sources, and the internal reporting pack is the primary cross-check for segment completeness.
Segment reporting (IFRS 8) vs. operating segment
| Dimension | Segment reporting (IFRS 8) | Operating segment |
|---|---|---|
| What it is | The disclosure framework requiring entities to report disaggregated financial information | A component of the entity that meets the IFRS 8.5 definition |
| Scope | Applies only to entities with publicly traded instruments | Exists as an internal management concept regardless of whether the entity reports under IFRS 8 |
| Who determines it | The standard prescribes the rules; the entity applies them | The CODM's internal reporting structure defines it |
| Reportability | Not all operating segments are reportable; quantitative thresholds in IFRS 8.13 apply | An operating segment may fall below all thresholds and be disclosed only in "all other segments" |
| Aggregation | IFRS 8.12 permits aggregation of operating segments with similar economic characteristics | Individual operating segments remain the starting point before any aggregation |
The distinction matters because auditors sometimes conflate the two. An entity may have six operating segments but report only three after applying the quantitative thresholds and aggregation criteria. Challenging the number of reportable segments requires understanding how many operating segments exist first.
Related terms
Frequently asked questions
Does IFRS 8 apply to private companies?
No. IFRS 8.2 limits the scope to entities whose equity or debt instruments are traded in a public market, or that are in the process of filing financial statements with a securities commission for the purpose of issuing instruments in a public market. A private company that voluntarily applies IFRS 8 must comply with all its requirements, but is not obligated to do so. If the entity applies the IFRS for SMEs, segment reporting is not required under that framework.
How do I audit the identification of the CODM?
Start with the entity's governance documents (articles of association, board charter, management regulations) to identify who allocates resources and assesses performance at the segment level. IFRS 8.7 states that the CODM is a function, not necessarily a title. The CODM might be the CEO, the management board collectively, or an executive committee. ISA 315.19 requires the auditor to understand the entity's organisational structure, and the CODM identification fits within that understanding.
What happens when the entity reorganises its divisions mid-year?
IFRS 8.34 requires restatement of prior-period segment information to reflect the new structure, unless the information is not available and the cost to develop it would be excessive. The entity must disclose that it has restated prior periods. The auditor tests whether the restated comparatives are consistent with the new CODM reporting structure and whether the disclosures explain the change.