IFRIC agenda decision – Disclosing revenue and expenses for reportable segments
IFRIC agenda decision – Disclosing revenue and expenses for reportable segments
| IFRS Interpretations Committee (the Committee) agenda decisions are those issues the Committee decided not to include on its agenda. Although not authoritative guidance, these decisions are regarded as being highly persuasive in practice. All entities reporting under IFRS® Accounting Standards should be aware of these decisions, as they could impact how particular transactions and balances are accounted for. |
The Committee’s latest agenda decision from July 2024 explains how an entity applies the requirements in paragraph 23 of IFRS 8 Operating Segments to disclose, for each reportable segment, specific items related to segment profit or loss. It results from a request to the Committee, which asked three questions:
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Number |
Question |
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1 |
Is the entity required to disclose, for each reportable segment, the amounts for items specified in IFRS 8, paragraph 23(a)–(i), if those amounts are not reviewed separately by the chief operating decision maker (CODM)? |
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2 |
Is the entity required to disclose, for each reportable segment, material items of income and expense that have been disclosed elsewhere in the financial statements, in accordance with IAS 1 Presentation of Financial Statements, paragraph 97? |
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3 |
How do you determine if an item is ‘material’ in IFRS 8, paragraph 23(f)? |
The Committee responded by first answering Question 1 and then addressing materiality in Questions 2 and 3.
Disclosure of specified amounts (Question 1)
The requirement to disclose specified amounts is stipulated in IFRS 8, paragraph 23.
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‘An entity shall report a measure of profit or loss for each reportable segment. An entity shall report a measure of total assets and liabilities for each reportable segment if such amounts are regularly provided to the chief operating decision maker. An entity shall also disclose the following about each reportable segment if the specified amounts are included in the measure of segment profit or loss reviewed by the chief operating decision maker, or are otherwise regularly provided to the chief operating decision maker, even if not included in that measure of segment profit or loss:’ Extract of IFRS 8, paragraph 23 (emphasis added) |
Committee observation
The Committee observed that the specified amounts in paragraphs 23(a) to (i) must be disclosed for each reportable segment when either:
- They are included in the measure of segment profit or loss reviewed by the CODM, even if they are not separately provided to or reviewed by the CODM, or
- They are regularly provided to the CODM, even if they are not included in the measure of segment profit or loss.
Material items of income and expense (Questions 2 and 3)
One of the specified amounts to be disclosed in IFRS 8, paragraph 23(f) is ‘material items of income and expense disclosed in accordance with paragraph 97 of IAS 1’.
Paragraph 97 of IAS 1 states that ‘when items of income or expense are material, an entity shall disclose their nature and amount separately’. The question put to the Committee was how to determine what is a ‘material item’, in particular, whether:
- ‘Material items’ are only those that are material on a qualitative basis
- ‘Material items’ include amounts that are an aggregation of individually quantitatively immaterial items
- The materiality assessment is performed at an income statement level (from an overall reporting entity perspective) or at a segment level.
You can find more background information on the basis of the Committee’s decision in the agenda decision.
Committee observation
In applying IFRS 8, paragraph 23(f), the Committee observed that an entity must consider materiality in various ways. Entities must:
- Assess whether the disclosure of information is material in the context of its financial statements taken as a whole
- Apply the aggregation/disaggregation requirements in IAS 1, paragraphs 30-31, when deciding how to aggregate information in the financial statements
- Consider the nature and magnitude of information (i.e. both qualitative and quantitative factors) when assessing if an item of income and expense is material
- Consider circumstances including, but not limited to, those contained in paragraph 98 of IAS 1, such as inventory write-downs, restructurings, disposal of property, plant and equipment and investments, discontinued operations, litigation settlements and reversals of provisions.
However, the Committee noted that IFRS 8, paragraph 23(f) does not require entities to disclose, by segment, all material income and expense items presented in the income statement or the notes under paragraph 97 of IAS 1. Entities must apply judgement to ensure disclosure in accordance with the core principle of IFRS 8, that is, information is disclosed to enable users to evaluate the nature and financial effects of business activities and the economic environment in which the entity operates.
Conclusion
The Committee decided not to add a standard-setting project to the work plan because it concluded that the principles and requirements in IFRS® Accounting Standards provide an adequate basis for an entity to apply the disclosure requirements in paragraph 23 of IFRS 8.
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This article has been based on an article that originally appeared on BDO Australia, read the original article here.