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Overview of Ind AS 108, Operating Segments

Indian Accounting Standard 108, Operating Segments

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.

The Standard requires an entity to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity that engages in business activities, whose operating results are regularly reviewed by the chief operating decision maker (CODM) for allocation of resources and assessment of performance and for which discrete financial information is available. Generally, financial information is required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments. The start-up operations which is yet to earn revenues may also be a operating segment.

If the entity chooses to disclose information in regard to segments which do not meet with the defination of this Standard, the entity shall not describe such information as segment information.

If a financial report contains both the consolidated financial statements of a parent that is within the scope of this Standard as well as the parent’s separate financial statements, segment information is required only in the consolidated financial statements.

The Standard requires an entity to report a measure of profit or loss operating segment. It also requires an entity to report a measure of total assets, liabilities and particular income and expense items if such amounts are regularly provided to the CODM. It requires reconciliations of totals of segment revenues, reported segment profit or loss, segment assets, segment liabilities and other material segment items to corresponding amounts in the entity’s financial statements.

CODM identifies a function i.e. allocating resources to and assessing the performance of the operating segments of an entity & not necessarily a manager with a specific title. Often the CODM of an entity is its chief executive officer or chief operating officer but, for example, it may also be a group of executive directors or others.

The Standard requires an entity to report information about the revenues derived from its products or services (or groups of similar products and services), about the countries in which it earns revenues and holds assets, and about major customers, regardless of whether that information is used by management in making operating decisions. However, the Standard does not require an entity to report information that is not prepared for internal use if the necessary information is not available and the cost to develop it would be excessive.

The Standard also requires an entity to give descriptive information about the way in which operating segments were determined, the products and services provided by such segments, differences between the measurements used in reportable segment information and those used in the entity’s financial statements, and changes in the measurement of segment amounts from period to period.

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