IND AS 108 Operating Segments

Transcription

1 IND AS 108 Operating Segments

2 Core Principles AS 17 The objective of this Standard is to establish principles for reporting financial information, about the different types of products and services an enterprise produces and the different geographical areas in which it operates. IND AS 108 An entity shall disclose information to enable 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.

3 Operating Segments INDEX A. Scope B. Operating Segments C. Reportable Segments D. Disclosure E. Measurement F. Entity Wide Disclosures

4 Scope of IND AS 108 Under AS - 17 Option given under AS 17 to present segment information on Standalone as well as Consolidated financial statements. Under IND AS 108: Segment information is required only in the consolidated financial statements.

5 Operating Segments AS 17 Under AS 17, Operating Segments were based on either business or geographical and the system of interim financial reporting to the Board of Directors and CEO based on the risk and rewards of the entity. Under IND AS 108 that engages in business activities from which it may earn revenues and incur expenses whose operating results are regularly reviewed by the entity s Chief Operating Decision Maker (CODM) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available Discrete is not defined under IND AS, however it means any information which is available for review of operating results by CODM

6 Operating Segments..Contd Concepts explicitly defined under IND AS 108 Chief Operating Decision Maker (CODM): CODM identifies a function, that function is to allocate resources to and assess the performance of the operating segments of the entity. For e.g. CEO, COO. Aggregation Criteria Two or more segments may be aggregated into a single operating segment if it is consistent with the core principle i.e. the segments have similar economic characteristics and the segment are similar in each of the following respects: a. the nature of products and services b. the nature of production process c. the type of customer for their products and services d. the method used to distribute their products or provide their services e. the nature of regulatory environment i.e. banking, insurance etc

7 Reportable Segments Under AS 17: Requires to identify primary and secondary segments based on the related products and services and geographical areas. Under IND AS 108 An entity shall report separately information about each operating segment that: a) Has been identified as an operating segment and b) Exceeds the quantitative thresholds No Concept of Primary or Secondary reportable segments

8 Reportable Segments.contd Quantitative threshold: The threshold criteria for reportable segments under AS 17 and under IND AS 108 is similar except for in case of Revenue wherein; AS per AS 17, it s revenue is 10% or more of revenue from external customers and AS per IND AS 108, It s revenue is 10% or more of total revenue of all operating segments (including inter segment revenue)

9 Reportable Segment.Contd Major difference in concept of reporting under AS 17 and IND AS 108 Under AS 17 If segment identified reportable during previous period but not during the current period, that segment should be considered as a reportable for the current period also. Under IND AS 108 If management judges, that the segment identified reportable during the previous period is of continuing significance, that segment shall continue to be reported even if it does not meet the threshold criteria during the current period.

10 Reportable Segment.Contd Similar Concepts of Segment reporting under AS 17 and IND AS 108 Additional reportable segments to be identified is the revenue reported by operating segment from external customers is less than 75 per cent of the entity s revenue. Additional segments may be disclosed even if it does not meet the quantitative thresholds if management believes that information about the segment would be useful to users of the financial statements. The other reportable segments shall be disclosed as all other segments. If segment is identified as reportable during the current period the segment data for the previous period should be presented for comparative purposes even if it does not satisfy the criteria established.

11 Disclosure of Reportable Segments As per IND AS 108 Entity shall disclose the following : a. General Information b.segment Revenue, Segment Expenses, Segment Assets and Segment Liabilities and the basis of its measurements. c. Reconciliation of totals of segment revenue, reported segment profit or loss, segment assets, segment liabilities and other material segment items to corresponding entity amounts. The disclosure requirements under AS 17 is more or less similar except for in item b above, where AS 17, defines what constitutes Segment Assets & Segment liabilities, whereas under AS 108, segment assets and liabilities constitute what is considered by CODM for its analysis.

12 Disclosure of Reportable Segments Contd. General Information: 1. Factors used to identify entity s reportable segment. 2. Judgments made by the management in applying aggregation criteria. 3. Types of products and services from which each reportable segment derives its revenues.

13 Disclosure of Reportable Segments Contd. Information about profit or loss, assets and liabilities: a) revenues from external customers; b) inter Segment revenue; c) interest revenue; (with certain exceptions) d) interest expenses; (with certain exceptions) e) depreciation and amortization; f) material items of income and expenses disclosed in accordance with paragraph 97 of IND AS 1. g) entity's interest in profits or loss of associates and joint ventures accounted for equity method; h) income tax expenses or income; (with certain exceptions) i) material non cash items other than depreciation and amortization; j) the amount of investment in associates and Joint ventures accounted for by the equity method; k) the amounts of additions to non current assets other than financial instruments, deferred tax assets, net defined benefit assets and rights arising under insurance contracts.

14 Disclosure of Reportable Segments Contd. Exceptions in disclosure of certain items: If majority of segment revenue are from interest and CODM relies on net interest revenue to assess the performance, then entity may report segment interest revenue and expenses on a net basis and disclose that it has been netted off. In case, interest revenue, interest expenses, income tax expenses are reported of an entity as a whole to CODM, then, no segment wise details of the same is required to be disclosed. However, depreciation and amortization expenses would be required to be shown separately even though the CODM reviews the segment on an EBITDA basis.

15 Measurement of Operating Segments Under AS 17: Segment assets, liabilities were defined and the segment disclosure was based on the AS compliant financial information Under IND AS 108: The amount of each segment item reported shall be the measure reported to the CODM. Adjustments, allocation of expenses and eliminations made in preparing an entity s financial statements shall be included in determining reported segment profit or loss only if they are included in the measure of the segment s profit or loss that is used by the CODM. Similarly, only those assets and liabilities that are included in the measures of the segment s assets and segment s liabilities that are used by the CODM shall be reported for that segment.

16 Measurement of Operating Segments.contd At a minimum, an entity shall disclose the following for each reportable segment: (a) the basis of accounting for any transactions between reportable segments. (b) the nature of any differences between the measurements of the reportable segments profit / loss, assets and liabilities and the entity s profit / loss, assets and liabiltiies before income tax expense or income and discontinued operations (if not apparent from the reconciliations). (c) the nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss and the effect, if any, of those changes on the measure of segment profit or loss. (d) the nature and effect of any asymmetrical allocations to reportable segments. for e.g., an entity might allocate depreciation expense to a segment without allocating the related depreciable assets to that segment.

17 Reconciliations of Operating Segments An entity shall provide reconciliations of all of the following: (a) the total of the reportable segments revenues to the entity s revenue. (b) the total of the reportable segments measures of profit or loss to the entity s profit or loss before / after tax expense (tax income) and discontinued operations. (c) the total of the reportable segments assets and segment liabilities to the entity s assets and liabilities. (d) the total of the reportable segments amounts for every other material item of information disclosed to the corresponding amount for the entity.

18 Entity-wide Disclosures IND AS 108 requires Entity-wide disclosures which applies to all entities including entities that have single reportable segment. Entity-wide Disclosure shall be provided only if the information required under the IND AS is not provided. IND AS 108, requires disclosure of the following information: a)products or services b)geographical areas c)major customers

19 Entity-wide Disclosures.contd a)information about products or services Disclosure of amounts of revenue from external customers for each product or service. The amounts of revenue shall be based on the financial information used to prepare financial statements. b) Information about geographic areas Revenue and Non Current Assets other than financial instruments, deferred tax assets, post employment benefit assets and rights arising under insurance contracts i) attributed to the entity s country of domicile and ii) Attributed to all foreign countries c) Information about major customers In case revenues from single external customer amount to 10% or more of entity's revenue, the disclosure of each such customer shall be disclosed.

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