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The Application of IFRS: Segment reporting

September 2010

© 2010 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

ForewordThe IASB published IFRS 8 Operating Segments in November 2006. The standard became effective for financial statements beginning on or after 1 January 2009. Previously entities applied IAS 14 Segment Reporting for the disclosure of segment information.

IFRS 8 sets out the requirements for disclosure of information about an entity’s operating segments using the management approach, both in regard to the identification of reportable segments and the measures disclosed for those segments (for example, the segment result). This major change from the approach in IAS 14 is an opportunity for entities to communicate with their stakeholders based on the information they use internally; enabling greater alignment of narrative explanations and the financial statements themselves.

However, the first application of any new standard is always a challenge and best practice inevitably develops only over time. IFRS 8 is likely to be no exception.

Following the end of the first reporting season in which IFRS 8 became mandatory, we wanted to look at practice to see how entities had grasped the opportunity to present their segment information through their own eyes, how much change this had generated, and to see how much consistency had emerged in the first year of application within and between specific sectors.

This publication presents the results of a survey of the segment disclosures of 81 companies operating in 10 sectors in their most recent financial statements, principally December 2009 year ends. This publication also presents examples of how some of these companies applied the disclosure requirements of IFRS 8 in practice.

Based on our survey, IFRS 8 has clearly facilitated a change in approach to segment reporting. The challenge for entities is to build upon this first experience of applying IFRS 8 and further enhance communication of segmental performance in the coming year in half-yearly and annual financial statements. We hope that this publication helps you to achieve this.

Steve McGregor (Leader) David Littleford (Deputy leader) Sanel Tomlinson KPMG’s global IFRS Presentation leadership team KPMG International Standards Group


About this publication This publication has been produced by the KPMG International Standards Group (part of KPMG IFRG Limited). We would like to acknowledge the principle authors of this publication. They are Daniel Armesto, Regina Croucher, David Littleford, Sanel Tomlinson and David Ward.

ContentThe purpose of this publication is to assist you in understanding the disclosure requirements of IFRS 8 Operating Segments for the disclosure of segment information. This publication is a result of a survey of the disclosures in practice of segment information and is based on the consolidated financial statements of 81 companies in 17 countries prepared under IFRSs and mostly published for 31 December 2009 year-end financial statements; further information about the companies in this survey is included on page 6 Basis of Publication.

The focus of this publication is to provide an understanding of the approach taken by companies in dealing with the requirements of IFRS 8; and to illustrate disclosures made by these companies in their consolidated financial statements that the KPMG International Standards Group believes are useful in assessing the type of information being disclosed in practice, and the formats and methods of disclosure. Information about how to use the disclosures in this publication is included on page 7 About the Disclosures.

The issues discussed in this publication provide a high-level overview of the requirements of IFRS 8. A more detailed discussion of the accounting issues that arise from the application of IFRS 8 and other IFRSs can be found in our publication Insights into IFRS. This IFRS 8 publication does not attempt to provide an exhaustive illustration of all disclosures required in a set of consolidated financial statements under IFRSs, and does not consider separate or individual financial statements. Accordingly, this publication should not be used as a substitute for referring to the standards and interpretations themselves.

When preparing financial statements in accordance with IFRSs, an entity has regard to its local legal and regulatory requirements. This publication does not consider the requirements of a particular jurisdiction.

IFRSs and their interpretation change over time. Accordingly, neither this publication nor any of our other publications should be used as a substitute for referring to the IFRSs.

The text of this publication is referenced to IFRS 8 and to selected other IFRSs in issue at 1 September 2010. References in the left-hand margin identify the relevant paragraphs. IFRS 8 was amended during the Improvements to IFRSs 2009 to clarify that segment information with respect to total assets is disclosed only if such information is regularly reported to the chief operating decision maker. This amendment is effective for annual periods beginning on or after 1 January 2010; early application is permitted. None of the companies surveyed disclosed that they had early adopted the amendment.

AbbreviationsThe following abbreviations are used often in this publication:

C&M Communications and Media sectorCEO Chief executive officerCODM Chief operating decision makerEBIT Earnings before interest and taxEBITDA Earnings before interest, tax, depreciation and amortisationENR Energy and Natural Resources sectorFDCG Food, Drink and Consumer Goods sectorGAAP Generally accepted accounting principlesIFRS International Financial Reporting StandardPharma Pharmaceutical sector


Other KPMG publications We have a range of publications that can assist you further, including:

¬¬ Insights into IFRS¬¬ IFRS compared to US GAAP ¬¬ Illustrative financial statements for interim and annual periods ¬¬ IFRS Handbooks, which include extensive interpretative guidance and illustrative examples to elaborate or

clarify the practical application of a standard ¬¬ New on the Horizon publications, which discuss consultation papers ¬¬ IFRS Practice Issues publications, which discuss specific requirements of pronouncements ¬¬ First Impressions publications, which discuss new pronouncements ¬¬ IFRS Disclosure checklist.

IFRS-related technical information also is available at kpmg.com/ifrs.

For access to an extensive range of accounting, auditing and financial reporting guidance and literature, visit KPMG’s Accounting Research Online. This web-based subscription service can be a valuable tool for anyone who wants to stay informed in today’s dynamic environment. For a free 15-day trial, go to www.aro.kpmg.com and register today.


Contents1. Introduction 5

Background 5

Whatdidoursurveyfind? 5

Basisofpublication 6

Aboutthedisclosures 7

2. The IFRS 8 “management approach” 9

2.1 Themanagementapproach 9

2.1.1 Impact of adopting the management approach in IFRS 8 10

2.1.2 Early adoption of IFRS 8 11

3. Application issues 12

3.1 Step1:IdentificationoftheCODM 12

3.2 Step2:Identificationofoperatingsegments 14

3.3 Step3:Aggregationofoperatingsegments 15

3.3.1 Aggregated segments 15

3.4 Step4:Determiningreportablesegments 17

3.4.1 Number of reportable segments 17

3.4.2 Comparison of the number of IFRS 8 and IAS 14 reportable segments 18

3.4.3 Basis on which reportable segments were identified 19

3.5 Step5:Segmentdisclosureinformation 27

3.5.1 Basis disclosed as being used for segment reporting 28

3.5.2 Measure of profit or loss used by the CODM 29

3.5.3 Disclosure of corporate assets and activities 31

3.5.4 Disclosure of information about joint ventures and associates 35

3.5.5 Presentation of segment information in currencies other than the presentation currency 40

3.5.6 Reconciliations and other disclosure requirements 40

3.5.7 Discontinued operations 48

3.5.8 Entity-wide disclosures 49

4. Other matters 53

4.1 Impactontheimpairmentanalysis 53

Appendix A: Overview of the requirements of IFRS 8 54


The Application of IFRS: Segment reporting September 2010

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1. Introduction

Background IFRS 8 Operating segments sets out requirements for segment disclosures by entities whose

debt or equity instruments are traded in a public market or that file, or are in the process of filing, their financial statements for the purpose of issuing any class of instrument in a public market. An overview of the requirements of IFRS 8 is included in Appendix A.

Many entities that are listed in a public market are large, with diversified, often multinational operations.

Communicating the performance of such entities to stakeholders is a challenge, requiring disaggregation to explain the trends and results of components of the entity that have been affected by different factors or that have different prospects. Entities are used to discussing performance on a disaggregated basis in the narrative sections of their annual reports. These sections often are relatively free-form, allowing flexibility to management to choose the most appropriate way to describe the business they run.

Previously, this was in stark contrast to the rigid disaggregation required by IAS 14 Segment reporting, under which disaggregation was by either business or product. However, IAS 14 has now been replaced by IFRS 8, which became effective for financial statements for accounting periods beginning on or after 1 January 2009.

IFRS 8 sets out the requirements for disclosure of information about the entity’s operating segments using the management approach, both in regard to the identification of reportable segments and the measures disclosed for those segments; for example, the disclosed segment result is the measure used by management to make decisions. This major change from the approach in IAS 14 is an opportunity for entities to communicate with their stakeholders based on the information they use internally; enabling greater alignment of narrative explanations and the financial statements themselves.

What did our survey find? The main results of our survey are set out in section 3 of this publication. In summary:

¬¬ We found that the average number of reportable segments had increased from 4.6 under IAS 14 to 5.2 under IFRS 8. An increase was widely expected and may, in part, reflect the relatively high hurdle that must be met before aggregation is permitted of operating segments that are reported separately internally.

¬¬ Freed from the constraints of IAS 14, nearly a quarter of companies presented segment disclosures on a mixed basis (e.g. reflecting some segments identified based on products and services and others based on geographical areas); an approach that would not have been permitted previously. Disaggregation by products and services was the most common approach (66 percent of companies), while geographical disaggregation was predominant in specific sectors.

¬¬ We found that more than half of all companies in our survey disclosed a measure of segment profit that excluded certain items (for example, interest, depreciation, amortisation or one-off items). While a variety of measures were disclosed across our survey, we found that there was some consistency within some sectors.

¬¬ Perhaps surprisingly, we found that disclosed segment measures were generally based on IFRS. This may indicate that IFRSs have now become embedded in internal management reporting. However, it may seem somewhat surprising that IFRS information is being used regularly by the chief operating decision maker (CODM) given some of the concerns occasionally raised about the complexity of IFRSs.


6 The Application of IFRS: Segment reporting September 2010

¬¬ Our survey did suggest a number of areas for which further improvements of the explanations and disclosures appear possible; for example, for segment measures, the factors (e.g. for aggregation) used to identify the reportable segments and the reconciliations of segment measures to IFRS measures. However, the first application of any new standard is always a challenge and best practice inevitably develops only over time. IFRS 8 is likely to be no exception and we expect to see further enhancement in the coming year.

Basis of publication The selection of the companies that form part of this publication was not performed on a statistical

basis. Rather, the purpose of the selection was to identify a cross-selection of companies from different countries and sectors on an objective basis.

The 2009 Fortune Global 500 list was used to identify a selection of companies that prepare their consolidated financial statements in accordance with IFRS or “IFRS equivalents” (see below). The criterion used in the 2009 Fortune Global 500 for ranking companies amongst the 500 biggest companies in the world is based on revenues.

All companies that adopted IFRS 8 for the year ended 31 December 2009 or before were considered in our selection. If a company had a different annual reporting date than 31 December 2009 (e.g. 30 June 2010) and had not yet published its annual financial statements or early adopted IFRS 8, it was disregarded from the selection.

Given their similarity to IFRSs for the purpose of segment reporting, IFRSs as adopted by the European Union (EU IFRSs) and Hong Kong Financial Reporting Standards (HKFRSs) were accepted as IFRS equivalents in preparing this publication.

The final selection of companies was drawn from the following countries and sectors:



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Companies were included in a sector when there were five or more companies for that particular sector. All other companies were included in an “Other” category.

About the disclosures The purpose of this publication is to assist you in understanding the disclosure requirements of

IFRS 8 for the disclosure of segment information. This publication does not represent a survey of what the KPMG International Standards Group might consider to be “industry best practice”. Rather, the disclosures included in this publication represent a range of current presentation and disclosure practices that the KPMG International Standards Group believes you may find useful and/or interesting, either in terms of the particular method of presentation chosen or in terms of the nature of the information disclosed. This publication does not critique specific disclosures or accounting policies.

In compiling this publication we came across many instances in which the terminology used by companies was not exactly the terminology used within the IFRSs themselves. Sometimes the terminology appeared to have been influenced by the company’s previous national GAAP; in other cases it appeared to have been influenced by US GAAP. For example, the term “fixed assets” was sometimes used instead of “property, plant and equipment”. Examples from these companies’ financial statements have been included in this publication when the KPMG International Standards Group believes that the term used by the company is commonly understood in practice and/or the company explained the term in its financial statements.

The disclosures presented in this publication do not illustrate all of the disclosure requirements of IFRS 8 and other IFRSs, and should not be relied upon for this purpose; even within each example, we make no representation that every disclosure required by IFRSs is present. The KPMG International Standards Group’s publication IFRS Disclosure checklist, published in June 2010, is available as a tool in assessing the full range of disclosures required by IFRSs.



The disclosures in this publication are extracts from the financial statements of the respective companies. Therefore, for example, this publication may not reproduce an entire note from a company’s financial statements; instead, in many cases it reproduces only those parts of the company’s disclosure that the KPMG International Standards Group considers relevant to the point being illustrated. You should refer to each company’s financial statements in their entirety for a complete picture of their respective disclosures.

In copying the disclosures from the companies’ financial statements the format used by the company has been replicated to the extent possible. However, some changes have been made to accommodate the style and format of this publication, including in respect of line and column spacing, fonts and font sizes, and shading. In addition, in some cases the presentation currency and rounding has been added to the disclosure when this was not part of the extract taken for this publication.



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2. The IFRS 8 “management approach” The core principle of IFRS 8 is the disclosure of information that enables users of an entity’s

financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environment in which it operates. The core principle is considered when forming judgements about how and what information is disclosed.

2.1 The management approach

Key messages from the survey

FormorethanhalfofthecompaniesthatadoptedIFRS8in2009,disclosurewasgivenonwhethertheintroductionofthemanagementapproachchangedthewaythatcompaniespresentsegmentinformationandinnearlyhalfofthesecasesachangehadoccurred.

SectorsthatdemonstratedahighpercentageofearlyapplicationofthemanagementapproachinIFRS8werealsotheonesthatpresentedthemostoccurrenceoftheuseofacombinationofthegeographical,andproductsandservicesfactorswhenidentifyingoperatingsegments.

IFRS 8 requires segment disclosure based on the components of the entity that management monitors in making decisions about operating matters (the “management approach”). Such components (operating segments) are identified on the basis of internal reports that the entity’s CODM reviews regularly in allocating resources to segments and in assessing their performance.

The management approach is based on the way in which management organises the segments within the entity for making operating decisions and in assessing performance. Consequently, the segments are evident from the structure of the entity’s internal organisation and the information reported internally to the CODM. The adoption of the management approach results in the disclosure of information for segments in substantially the same manner as it is reported internally and used by the entity’s CODM for purposes of evaluating performance and making resource allocation decisions. In that way, financial statements users are able to see the entity “through the eyes of management”.

The practical approach to segment reporting under IFRS 8 includes five steps, as presented in the chart below.

Identification of the chief operating decision maker (CODM)

Identification of operating segments

Aggregation of operating segments

Determining reportable segments

Segment disclosure information

Step 1

Step 2

Step 3

Step 4

Step 5



IFRS 8.7 Identification of the CODM The identification of the CODM is an essential first step in the application of IFRS 8. The CODM

usually is the highest level of management (e.g. the managing director, the CEO or chief operating officer (COO)) responsible for the entity’s overall resource allocation and performance assessment. Lower level management may make decisions about resource allocation that relate to less than the whole entity (i.e. allocation decisions are not made across the entire organisation). These lower levels of management cannot be the CODM.

IFRS 8.5 Identification of operating segments The operating segments are identified based on the way in which financial information is organised

and reported to the CODM. An operating segment generally has a segment manager who is directly accountable to and reports to the CODM.

IFRS 8.12 Aggregation of operating segments IFRS 8 permits operating segments to be aggregated if they have similar economic characteristics

and comply with specific aggregation tests. A significant amount of judgement may be required when applying the aggregation tests.

IFRS 8.13 Determining reportable segments IFRS 8 includes quantitative thresholds for determining the reportable segments. The final test is

that the total external revenue of the identified reportable segments constitutes 75 percent or more of total consolidated revenue. If not, additional operating segments are required to be reported separately until at least 75 percent of total consolidated revenue is accounted for by the reportable segments.

IFRS 8.20-24 Segment disclosure information Once the reportable segments have been determined, entities are required to disclose certain

segment information. The amount of each segment item disclosed may be determined using accounting policies different from those applied in the financial statements. In addition, IFRS 8 requires some entity-wide disclosures.

The survey considered the approaches adopted by companies in applying IFRS 8, and we present the results of the survey and some disclosure examples in the context of these five steps.

2.1.1 Impact of adopting the management approach in IFRS 8 IFRS 8.36, IFRS 8 does not require disclosure of the impact of adopting IFRS 8 in the segment reporting IAS 8.19(b) disclosures; instead, comparative information from the previous year is restated upon initial

adoption, and details of the change in accounting policy are disclosed.

Sixty percent of the companies surveyed that adopted IFRS 8 in 2009 (i.e. 52 companies) disclosed whether or not the application of IFRS 8 had changed the way in which they presented reportable segments; and in nearly half of these cases the introduction of IFRS 8 had changed the way in which reportable segment information was presented.

The following extract illustrates an example of the disclosures provided in relation to the impact of the adoption of IFRS 8 that resulted in changes to the segment reporting disclosure.



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Disclosure 1: Munich Reinsurance Company

The implementation of IFRS 8, Operating Segments, to be applied for the first time as from 1 January 2009, has resulted in additional disclosures in the notes and a modified disclosure of items in our segment reporting. The business fields in which we operate continue to form the basis for identifying the segments to be reported. In accordance with the “management approach”, the way in which Munich Re is managed internally constitutes the basis for the changes in disclosure described in the following. In primary insurance, we now separate the previously combined life and health segment into the two individual segments, life and health. Health reinsurance and our specialised insurers in international health primary insurance business that are managed from within reinsurance, together with the international health primary insurance business conducted by ERGO, have been brought together in a separate business field, which has been operating under the Munich Health brand since May 2009.

Source: Munich Reinsurance Company, Annual Report 2009, p. 196.

2.1.2 Early adoption of IFRS 8 IFRS 8 allowed entities to early adopt the disclosure requirements for segment information. Of the

companies that early adopted IFRS 8 (29 companies from our survey), the chart below shows the percentage compared to the total number of companies included in the survey for each of the sectors.

Early application of the standard by a significant number of companies in our survey may indicate the benefits brought by IFRS 8 when requiring information to be disclosed based on the same basis as used internally for evaluating operating segments (i.e. the management approach). A further look at how management identifies reportable segments (see 3.4) shows that the three sectors that presented significant early application of IFRS 8 (i.e. Communications and Media, Diversified Industrials and Energy and Natural Resources) are the same sectors that presented the most occurrence of the use of a combination of the geographical, and products and services factors when identifying operating segments.



3. Application issues

3.1 Step 1: Identification of the CODM


DisclosureoftheidentityoftheCODMisnotrequiredunderIFRS8.However,justoverathirdofthecompaniessurveyedvoluntarilydisclosedtheidentityaspartoftheexplanationofhowIFRS8isapplied,notablyinconnectionwithhowreportablesegmentsaredetermined.

MorethanthreequartersofthecompaniesthatdisclosedtheidentityoftheCODMidentifiedtheCODMasbeingagroupofexecutivedirectorsorsimilargoverningbody.

IFRS 8.7 The term “chief operating decision maker” refers to a function, rather than to a specific title. The function of the CODM is to allocate resources to the operating segments of an entity and to assess their performance. The CODM usually is the highest level of management (e.g. CEO or COO), but the function of the CODM may be performed by a group rather than by one person (e.g. a Board of Directors, an executive committee or a management committee). However, in our view the mere existence of an executive committee, management committee or other high-level committee does not necessarily mean that one of those committees constitutes the CODM.

IFRS 8.22 Identifying the CODM is the first step in identifying reportable segments. While IFRS 8 requires disclosure of the factors used to identify reportable segments, there is no explicit requirement within IFRS 8 to explain who (or what) is the CODM, or how the CODM was determined.

In many companies, the identification of the CODM may be relatively straightforward. However, given the difference in governance models that may exist and the increasingly global audience for financial statements, the identity of the CODM may be of relevance to users of financial statements and more than a third of the companies in our survey voluntarily disclosed this information. Perhaps unsurprisingly, in most of these cases the CODM was identified as being either the whole of the Board of Directors or the Executive Directors/Executive Board. In only five companies was the CEO identified as the CODM. In a very small number of cases the CODM was identified as being a sub-group of the Board.

IFRS 8.7 A lower level of management may make decisions about resource allocation that relate to less than the whole of the entity. Such lower levels of management cannot be the CODM of the entity.



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While there was some variance, the results were broadly consistent across the various sectors.

The high percentage of companies that did not disclose the CODM may be related to the fact that disclosure of the CODM is not required by IFRS 8; or it may be that many companies concluded that the identification of the CODM is sufficiently straightforward not to warrant additional disclosure.

As can be seen from the chart above, only 9 percent of companies (i.e. seven companies) chose to make specific disclosures about how the CODM was determined. Most of the companies that did so also disclosed the identity of the CODM.

The following extracts illustrate disclosures in practice of who/what the company determined as the CODM and how the CODM was identified.

Disclosure 2: GDF Suez SA

In accordance with the provisions of IFRS 8 – Operating Segments, the operating segments used to present segment information were identified on the basis of internal reports used by the Group’s Management Committee to allocate resources to the segments and assess their performance. The Management Committee is the Group’s “chief operating decision maker” within the meaning of IFRS 8.

Source: GDF Suez SA, Consolidated Financial Statements 2009, p. 314.

Disclosure 3: MAN SE

Effective from the first quarter of 2009, the activities of the MAN Group are therefore classified into the following reportable segments: MAN Nutzfahrzeuge, MAN Latin America, MAN Diesel, and MAN Turbo. These segments are identical to those divisions. Management of each of these segments reports directly to MAN SE’s Executive Board in the latter’s role as chief operating decision-maker.

Source: MAN SE, Annual Report 2009, p. 149.



3.2 Step 2: Identification of operating segments

Key message from the survey

Companiesarerequiredtopresentinformationatareportablesegmentlevel,whichmaydifferfromtheidentifiedoperatingsegments.Identifyingtheoperatingsegmentsinmultinationalcompanieswithactivitiesinmanycountriesandarangeofdifferentproductsmayrequiresignificantjudgement.

IFRS 8.5 Operating segments are identified based on the way in which financial information is organised and reported to the CODM. An operating segment is identified by IFRS 8 as a component of an entity:

¬¬ that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses relating to transactions with other components of the same entity;

¬¬ whose operating results are reviewed regularly by the entity’s CODM in order to allocate resources and assess its performance; and

¬¬ for which discrete financial information is available.

Under IFRS 8 operating segments are the individual operations that the CODM reviews for purposes of assessing performance and making resource allocation decisions. Operating segments could be identified on a number of different bases, including:

¬¬ product¬¬ service¬¬ customer¬¬ geography¬¬ legal entity¬¬ individual plant (e.g. automotive supplier)¬¬ individual property (e.g. real estate investment trust).

IFRS 8.8-10 Identifying the appropriate operating segments is not always obvious. Many entities, particularly multinational entities with diverse operations, organise and report financial information to the CODM in more than one way. In such situations entities should make reference to the core principle of IFRS 8 when deciding which set of components constitutes the operating segments.



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3.3 Step 3: Aggregation of operating segments


Relativelyfewcompaniesdisclosedclearlythatsegmentshadbeenaggregated.Ofthesecompanies,formosttheaggregationrelatedtonon-reportableoperatingsegmentsi.e.thosethatdidnotmeetthequantitativethresholds.

TheapparentlylowoccurrenceofaggregationofoperatingsegmentsmayreflecttherelativelyhighhurdleimposedbyIFRS8thatmustbemetforaggregationtooccur.

IFRS 8.12 Under IFRS 8 two or more operating segments may be aggregated into a single operating segment when the operating segments have characteristics so similar that they can be expected to have essentially the same prospects. Aggregation is permitted only if:

¬¬ it is consistent with the core principle of IFRS 8; ¬¬ the segments have similar economic characteristics; and ¬¬ the segments are similar in each of the following respects:

– the nature of products and services; – the nature of the production processes; – the type or class of customer for their products and services; – the methods used to distribute their products or provide their services; and – if applicable, the nature of the regulatory environment, e.g. banking, insurance or public utilities.

IFRS 8.14 Non-reportable operating segments (see 3.4) may be aggregated if they have similar economic characteristics and share a majority of the last five aggregation criteria listed above.

IFRS 8.1 To be consistent with the core principle of IFRS 8, entities should aggregate when the result would significantly impact the user’s ability to understand the entity’s performance, its prospects for future cash flows or users’ decisions about the entity as a whole.

3.3.1 Aggregated segmentsIFRS 8.22(a) Our survey considered whether there were any disclosures indicating that segments may have

been aggregated. In particular, IFRS 8 requires disclosure of the factors used to identify reportable segments and gives aggregation as an example. In addition, for those companies that disclosed that aggregation had occurred, we further considered any disclosure of the reasons for aggregation.



IFRS 8.12 The apparently low occurrence of aggregation may reflect the relatively high hurdle that must be met for aggregation to occur. However, since for 55 companies (68 percent) there was no clear disclosure whether or not aggregation has occurred, there may have been more aggregation than was apparent.

IFRS 8.13 Of the ten companies that disclosed that aggregation had occurred, eight (80 percent) explained the reasons for the aggregation. In most cases the reasons related to operating segments having not met the quantitative thresholds within IFRS 8. This indicates that in these cases aggregation was based on the lower hurdle for aggregation required for non-reportable operating segments (i.e. when only a majority of the stated characteristics must be similar).

Disclosure 4: Nestlé S.A.

Segment reportingOperating segments reflect the Group’s management structure and the way financial information is regularly reviewed by the Group’s chief operating decision maker (CODM), which is defined as the Executive Board.

The Group is focused in two areas of activity, Food and Beverages, and Pharmaceuticals. The Group’s Food and Beverages business is managed through three geographic Zones and several Globally Managed Businesses (GMBs). Zones and GMBs, that meet the quantitative threshold of 10% of sales, EBIT or assets, are presented on a standalone basis as reportable segments. Other GMBs that do not meet the threshold, like Nestlé Professional, Nespresso, and the food and beverages Joint Ventures, are aggregated and presented in Other Food and Beverages. The Group’s pharmaceutical activities are also managed, and presented, separately. Therefore, the Group’s reportable operating segments are:

– Zone Europe;– Zone Americas;– Zone Asia, Oceania and Africa;– Nestlé Waters;– Nestlé Nutrition;– Other Food and Beverages; and– Pharma.

Source: Nestlé S.A., Consolidated Financial Statements 2009, p. 52.



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3.4 Step 4: Determining reportable segments


Thenumberofreportablesegmentsincreasedonaveragefrom4.6underIAS14to5.2underIFRS8.TheincreaseinthenumberofreportablesegmentswasexpectedduetotheconstraintsimposedbyIAS14andalsobecauseoftherelativelyhighhurdleforaggregationinIFRS8.

Two-thirdsofcompaniesusedproductsandservicesasthebasisfortheirsegmentreporting,whilejustunderaquarterusedacombinationofbothproductsandservices,andgeographicalareasasthebasesfortheirsegmentreporting.

IFRS 8.13 Under IFRS 8 an operating segment is required to be reported separately if any of the following quantitative thresholds is met:

¬¬ The segment’s reported revenue (external sales and inter-segment transfers) is 10 percent or more of the combined revenue (internal and external) of all operating segments.

¬¬ The absolute amount of the segment’s reported profit or loss is 10 percent or more of the greater, in absolute amount, of (1) the combined reported profit of all operating segments that did not report a loss; and (2) the combined reported loss of all operating segments that reported a loss.

¬¬ The segment’s assets are 10 percent or more of the combined assets of all operating segments.

IFRS 8.13,16 An entity may identify additional segments voluntarily. Any remaining segments (that are not reportable) are included in an “all other segments” category within the reconciliations from the total reportable segments to the IFRS amounts reported in the financial statements.

A number of companies in our survey included operating segments within an “all other segments” category, although the name used to describe this category varied (see 3.4.1 for further information).

We surveyed three aspects of disclosure in respect of reportable segments. First, we looked at the number of reportable segments that the companies disclosed under IFRS 8. Second, for those companies that applied IFRS 8 for the first time, we compared the number of reportable segments to the number of reportable segments under IAS 14 in the previous year. Third, we looked at the basis for identifying reportable segments under IFRS 8.

3.4.1 Number of reportable segments The average number of segments reported for the 81 companies was 5.2. However, as can be seen

from the graph there was some variation in the number of segments reported by companies. The sectors with the highest and lowest averages were affected by individual companies in the sectors.

Notably, in the Insurance sector one company disclosed 13 segments. This was the most reportable segments disclosed by any company in our survey. Excluding this company from the survey, the average number of reportable segments in the Insurance sector drops from 6.8 to 5.3 and the average number of segments reported for all companies drops from 5.2 to 5.1.



IFRS 8.23, 28 While IFRS 8 requires disclosures about each reportable segment together with reconciliations of certain total reportable segment measures to the IFRS amounts, there is no explicit requirement to disclose sub-totals for all reportable segments. In performing our survey we noted that in some cases it was not entirely clear whether certain disclosures formed part of the reconciliations or were themselves a reportable segment. This was particularly the case when amounts were described as “other”. It was unclear whether these amounts represented other operating segments

IFRS 8.13, 16 that had been designated as a reportable segment, or an amount in respect of all other (non-reportable) segments that forms part of the reconciliations, or merely other reconciling items. We excluded columns titled “Other”, “Corporate Centre”, “Corporate and Other” or similar from our calculation of the number of reportable segments.

With regard to the presentation of the sub-total for all reportable segments, our survey showed that in only 20 percent of cases (16 companies) a column with the sub-total for the reportable segments was presented. See Disclosures 19 and 22 for examples of the presentation of a sub-total column.

3.4.2 Comparison of the number of IFRS 8 and IAS 14 reportable segments For the 52 companies in our survey that applied IFRS 8 for the first time, we compared the number

of IFRS 8 reportable segments to the number of reportable segments identified in the primary segment disclosures under IAS 14 in their previous year’s financial statements.

For these 52 companies, the average number of IFRS 8 reportable segments disclosed in 2009 was 5.2 segments. In the previous year when reporting under IAS 14 the average number was 4.6 segments.

The increase in the number of reportable segments can be seen as the expected result of applying the management approach under IFRS 8, together with the relatively high hurdle to be met to aggregate operating segments under IFRS 8.



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3.4.3 Basis on which reportable segments were identified

IAS 14 restricted the identification of reportable segments to either products and services or geographical areas. Almost a quarter of all companies surveyed were now able to present segment disclosures under IFRS 8 using a combination of products and services, and geographical areas, reporting in a manner consistent with the way that management views the business.

The survey shows that only a small percentage of the sample of 81 companies selected (11 percent) used geographical area as the sole basis for their segment reporting to the CODM, perhaps reflecting the globalisation in many sectors. The vast majority used products and services solely (66 percent) or a combination of both products and services, and geographical areas (23 percent).

However, a more in-depth analysis of our survey result reveals some diversity between sectors when identifying segments. For the Food, Drink and Consumer Goods sector, five of the six



companies used geographical area solely as their basis for their segment reporting to the CODM; the remaining company used it in combination with products and services. For the Communications and Media sector, two of the five companies used geographical area solely as the basis for their segment reporting to the CODM, while two of the remaining three companies used it in combination with products and services.

Our survey found that both the Automotive and Transport sectors used products and services exclusively as the basis for their segment reporting to the CODM. Another three sectors also had this basis for internal reporting for the majority of the companies surveyed.

In most cases when reportable segments were identified based on both geographical area, and products and services, the majority of the reportable segments were identified based on products and services. Generally, segments based on geographical areas were disclosed either as a sub-division of the same product or service into different geographical areas or when regions/countries were treated as one segment due to the nature of the product or services in those regions/countries having different characteristics/risk factors attached to them.

IFRS 8.22(a) The following extracts from financial statements illustrate how the companies in our survey identified reportable segments, as well as the disclosure of the factors used in the identification as is required by IFRS 8.

Disclosure 5: Anheuser-Busch InBev NV/SA

Geographical areaAB InBev’s operating segment reporting format is geographical because the company’s risks and rates of return are affected predominantly by the fact that AB InBev operates in different geographical areas. The company’s management structure and internal reporting system to the board of directors is set up accordingly. A geographical segment is a distinguishable component of the company that is engaged in providing products or services within a particular economic environment, which is subject to risks and returns that are different from those of other segments. In accordance with IFRS 8 Operating segments AB InBev’s reportable geographical segments were determined as North America, Latin America North, Latin America South, Western Europe, Central and Eastern Europe, Asia Pacific and Global Export and Holding Companies. The company’s assets are predominantly located in the same geographical areas as its customers.

Source: Anheuser-Busch InBev NV/SA, Annual Report 2009, p. 84.

Disclosure 6: Deutsche Bahn AG

Products and servicesSegment reporting has been prepared in accordance with IFRS 8 (Operating Segments). DB Group has identified its operating segments on the basis of internal management reporting; the segmentation of the divisions is based on the services rendered by the various divisions.

Source: Deutsche Bahn AG, Annual Report 2009, p. 243.

There might be situations in which the internal structure of the entity is complex and the information provided to the CODM may be presented in a variety of ways.

IFRS 8.10 Some entities use a “matrix” form of organisation, whereby business components are managed in more than one way. If the entity generates financial information about its business components based on both geography, and products and services (and the CODM uses both sets of information), then the entity determines which set of components constitutes the operating segments by reference to the core principle.



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Disclosure 7: HSBC Holdings Plc

HSBC’s operating segments are organised into six geographical regions; Europe, Hong Kong, Rest of Asia-Pacific, Middle East, North America and Latin America. Due to the nature of the Group, HSBC’s chief operating decision-maker regularly reviews operating activity on a number of bases, including by geographical region, customer group and global business, and retail businesses by geographical region. HSBC’s IFRS 8 operating segments were determined to be geographical regions because the chief operating decision-maker primarily uses information on geographical regions in order to make decisions about allocating resources and assessing performance.

Source: HSBC Holdings Plc, Annual Report 2009, p. 365.

In the extract illustrated above, although there are many bases on which management reviews the operating activities, geographical areas are used primarily when allocating resources and assessing performance.

In other situations, however, the operating decisions may be made in a combination of products and services, and other business factors (i.e. risks and capital allocation).

Disclosure 8: Allianz SE

The business activities of the Allianz Group are first organized by product and type of service: insurance activities, asset management activities and corporate and other activities. Due to differences in the nature of products, risks and capital allocation, insurance activities are further divided between Property-Casualty and Life/Health categories. Both categories are grouped into 5 reportable segments according to the responsibilities of members of the Board of Management as follows:

¬¬ German Speaking Countries¬¬ Europe I incl. South America¬¬ Europe II incl. Africa¬¬ Anglo Broker Markets/Global Lines¬¬ Growth Markets.

Source: Allianz SE, Annual Report 2009, p. 252.

IFRS 8.19 IFRS 8 does not establish a limit for the number of reportable segments presented by entities. However, when the number of reportable segments increases above 10, management should consider whether there is a practical limit beyond which the information disclosed is too detailed.

Of the companies surveyed, only one company reported more than 10 reportable segments (13 reportable segments). As disclosed by the company, this was mainly driven by the different characteristics of the products and services and also due to differences in the nature of the products, the risks associated and capital allocation.

None of the companies surveyed reported operating segments based solely on factors related to the regulatory environment. Nevertheless, as regulated and non-regulated activities may be a significant component of the company’s operations, reportable operating segments may be determined based on how such factors interact with products and services, geographical location etc.



Disclosure 9: Iberdrola S.A.

Due to the characteristics of the activities developed by the IBERDROLA Group, the reported segments agree with strategic business units rather than with the delivered products and services. The segments are independently managed as they have different technologies and regulation and are located in different geographical markets.

Transactions among different segments are carried out on an arm’s length basis.

The operating segments identified by the IBERDROLA Group are as follows:

¬¬ The deregulated business: this segment includes electricity generation in ordinary regime and the sale of electricity and gas, mainly in Spain. Additionally, this segment includes the activity of Last Resort Supply of electricity and gas, as long as despite being considered a regulated activity its management is carried out by the liberalized business.

¬¬ Regulated business: the electricity and gas distribution business made in Spain. ¬¬ Non-energy: this segment includes the real estate activities performed in Spain (Notes 4.i

and 4.n), the engineering business and the other non-energy activities. ¬¬ Renewables: includes primarily generation from renewable energy sources worldwide and

the gas storage and electricity and gas supply businesses carried out in the USA. ¬¬ South America: this segment includes the electricity generation, distribution and supply

activities in this continent. ¬¬ Mexico-Guatemala: this segment includes electricity generation in Mexico (Note 4.j) and the

distribution and sale of electricity in Guatemala. ¬¬ SCOTTISH POWER: this segment includes all the activities undertaken in the UK except for

the renewable energy business, i.e., the generation, the transport, the distribution and the sale of electricity and the sale of gas.

¬¬ IBERDROLA USA: includes electricity generation, distribution and supply in the North- East region of the United States, carried on entirely through the subgroup of which IBERDROLA USA is parent.

Source: Iberdrola S.A., Consolidated Annual Financial Statements 2009, p. 67.

IFRS 8.5 Operating segments can include, but are not limited to, start-up operations, vertically integrated operations, and jointly controlled entities and associates (see 3.5).

Vertically integrated activities In certain vertically integrated businesses, information about the components engaged in each

stage of production might be useful for the users of financial statements, as different activities within the entity might have significantly different prospects for future cash flows. Under IFRS 8 the definition of an operating segment includes components of an entity that sell primarily or exclusively to other operating segments of the entity if the entity is managed in that way.

In accordance with IFRS 8 it is the ability of a segment to earn revenues that matters rather than the mere allocation of revenues when determining operating segments.



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Disclosure 10: OMV AG

For business management purposes OMV Group is divided into three operating segments: Exploration and Production (E&P), Refining and Marketing including petrochemicals (R&M) and Gas and Power (G&P), as well as the segment Corporate and Other (Co&O). Each segment represents a strategic unit with different products and markets. Each business segment is managed independently. Strategic business decisions are made by the Executive Board of OMV.

E&P engages in the business of oil and gas exploration, development and production and focuses on the six core regions Central and Eastern Europe, Northwestern Europe, North Africa, Middle East, Australia / New Zealand and Russia / Caspian Region. The produced oil and gas is primarily sold within the OMV Group.

R&M operates the refineries Schwechat (Austria), Burghausen (Germany), as well as Arpechim and Petrobrazi (Romania) and holds an at equity consolidated 45% share in the Bayernoil refinery complex (Germany). In these refineries, oil and gas is processed into petroleum products, which are sold to commercial and private customers. Distribution is partially effected via an own operated filling station network in Central and Southeastern Europe. Furthermore, OMV holds an at equity consolidated share of 41.58% in Petrol Ofisi A.S., which operates a filling station network in Turkey.

The G&P segment engages in gas transit through and transport within Austria, as well as in gas storage, marketing and trading. OMV is the sole operator of long-distance gas transmission pipelines in Austria. The power business extends the gas value chain into gas fired power plants.

Source: OMV AG, Annual Report 2009, p. 130.

The fact that an entity has vertically integrated operations does not necessarily mean that each of these individual operations will be considered separate operating segments for purposes of IFRS 8. This will depend on how the business is managed and how the financial information is organised and reported to the CODM.

The Energy and Natural Resources sector, more specifically oil and gas companies, presented several occurrences of vertically integrated activities. This may be mainly due to the business model adopted in this sector in which the oil and gas activities often are managed independently for each of exploration and extraction, refinement and the final sale to customers.

IFRS 8.27(a) Additionally, IFRS 8 requires that entities disclose the basis for any transactions between reportable segments. In general, companies included in the survey complied with this requirement by including a statement that intra-group sales and other transactions were made on an “arm’s length basis” or at “market prices”.

Presentation of non-reportable segmentsIFRS 8.14 An entity might be able to aggregate information about operating segments that fall below the

quantitative thresholds based on the aggregation criteria in IFRS 8 (see 3.3). Under IFRS 8 an entity is allowed to combine information about two or more such operating segments that do not meet the quantitative thresholds to produce a reportable segment only if the operating segments share a majority of the aggregation criteria, provided that the aggregation is consistent with the core principle of IFRS 8 and the segments have similar economic characteristics.

IFRS 8.28 However, if those segments do not share a majority of the aggregation criteria and have similar economic characteristics, then IFRS 8 requires that information about other business activities and operating segments that are not reportable be combined and disclosed in an “all other segments” category separate from other reconciling items in the reconciliations required by IFRS 8.



Our survey showed that in practice companies disclosed information about segments that did not meet the threshold requirements of IFRS 8 in a number of ways. Some companies reported such operating segments under the title of “Other”, “Other activities”, “Corporate and Other” and “Holding company and Others” or even using a different name to define all other segments.

IFRS 8.12 The following disclosure illustrates a situation in which a company had operating segments that did not meet the quantitative thresholds that were aggregated for presentation because they had similar economic characteristics. All other segments that were not aggregated were then disclosed separately in the “all other segments” category.

Disclosure 11: TUI AG

The identification of operating segments was based on the internal organisational and reporting structure, built on the different products and services within the TUI Group. Allocation of the individual organisational entities to the operating segments was exclusively based on economic criteria, irrespective of the participation structure under company law. For the presentation of reportable segments in accordance with IFRS 8, both operating segments with comparable economic features and operating segments not meeting the quantitative thresholds were aggregated with other operating segments.

The ‘All other segments’ segment carried the Group’s real estate companies, all non-allocable business activities (in particular holding companies) and has included the result from the measurement of the stake in Container Shipping since 1 April 2009. The ‘Holdings’ Sector also carried turnover from and expenses for the intra-group aircraft charter business.

Source: TUI AG, Annual Report 2009, p. 146.

IFRS 8.16, 28 IFRS 8 requires that information about other business activities and operating segments that are not reportable be combined and disclosed in an “all other segments” category separate from other reconciling items in the reconciliations required by IFRS 8. The sources of the revenue included in the “all other segments” category should be described.



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The following extract illustrates a company aggregating all other segments as a “New Market segment”.

Disclosure 12: E.ON AG

The segment information of the E.ON Group is presented in line with the Company’s internal organizational and reporting structure.

¬¬ The Central Europe market unit focuses on E.ON’s electricity business and the downstream gas business in central Europe.

¬¬ Pan-European Gas is responsible for the upstream and midstream gas business. This market unit additionally holds interests predominately in energy businesses in Europe outside of Germany.

¬¬ The U.K. market unit encompasses the energy business in the United Kingdom.¬¬ The Nordic market unit is concentrated on the energy business in Northern Europe.¬¬ The U.S. Midwest market unit is primarily active in the regulated energy market in the U.S.

state of Kentucky.¬¬ Energy Trading combines E.ON’s European trading activities for electricity, gas, coal, oil and

CO2 allowances.¬¬ All of the remaining operating segments have been combined in accordance with IFRS 8,

and are reported as the “New Markets” segment. New Markets contains the activities of the Climate & Renewables, Italy, and Russia market units, as well as the Spain market unit.

Source: E.ON AG, 2009 Financial Report, Annual Report Part II/II, p. 139.

Changes in the composition of operating segments 2009 was the first year of mandatory application of the management approach concept under

IFRS 8 for disclosing reportable segments information. With the introduction of the management approach concept, disclosure of segment information follows the internal structure in which information is provided to the CODM for assessing performance and allocating resources. Events might occur (e.g. a significant internal reorganisation) that change the composition of the operating segments. In these cases the financial results may be grouped and reported differently to the CODM.

IFRS 8.29 Following a change in the composition of an entity’s operating segments that in turn results in a change in the composition of reportable segments, IFRS 8 requires previously reported segment information (including interim periods) to be restated, unless the information is not available and the cost to develop it would be excessive. The entity should determine whether these limitations apply for each individual item of disclosure. The entity also should disclose whether it has restated the comparative items of segment information for earlier periods.

The following extract illustrates information provided by a company following changes in the composition of the operating segments resulted from changes in management responsibility and acquisition and disposals during the financial year.



Disclosure 13: Deutsche Bank AG

Changes in the composition of segments can arise from either changes in management responsibility, or from acquisitions and divestitures.

The following describes changes in management responsibilities with a significant impact on segmental reporting during 2009:

¬¬ On April 1, 2009, management responsibility for The Cosmopolitan Resort and Casino property changed from the corporate division CB&S to the corporate division CI.

¬¬ During the first quarter 2009, management responsibility for certain assets changed from the corporate division AWM to the corporate division CI. These assets included Maher Terminals, a consolidated infrastructure investment, and RREEF Global Opportunity Fund III, a consolidated real estate investment fund.

The following describes acquisitions and divestitures which had a significant impact on the Group’s segment operations:

¬¬ In November 2009, the Group completed the acquisition of Dresdner Bank’s Global Agency Securities Lending business from Commerzbank AG. The business is included in the corporate division GTB.

¬¬ On February 25, 2009, the Group completed the acquisition of a minority stake in Deutsche Postbank AG, one of Germany’s major financial services providers. As of that date, the Group also entered into a mandatorily-exchangeable bond as well as options to increase its stake in the future. All components of the transaction are included in the corporate division CI.

Source: Deutsche Bank AG, Financial Report 2009, pp. 194-195.



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3.5 Step 5: Segment disclosure information


AlmostallcompaniesusedinformationbasedonIFRSstoreportontheperformanceoftheiroperatingsegments.ThismayindicatethatIFRSshavenowbecomeembeddedininternalmanagementreports.ThismayseemsomewhatsurprisinggiventheconcernsoccasionallyraisedaboutthecomplexityofIFRSs.

Halfofthecompaniessurveyedpresentedameasureofsegmentprofitorlossthatexcludedinterestandtax.Manyofthesealsoexcludedcertainitems(e.g.depreciationandamortisation,one-offitems)fromthemeasureofsegmentearningsusedbytheCODM.Nearlyaquarterofcompaniesdisclosedmultiplemeasures.

Oursurveyshowedarelativelyhighlevelofconsistencyregardingtheprofitorlossmeasureusedbycompanieswithinthesamesector.

Practiceusedtodisclosecorporateassetsandactivitieswasmixed,withcompaniesincludingsuchinformationwithin“CorporateCentre”,“Other”,“CorporateandOther”or“Other/elimination”captions.TwocompaniesdisclosedthatcorporateassetsandactivitieswereallocatedtoreportablesegmentsinthemeasurereportedtotheCODM.

Withregardtothedisclosureofinformationrelatedtojointventuresandassociates,justoverathirdofcompaniesintegratedsuchinformationinotherreportablesegments.Onlytwocompaniesdisclosedsuchinformationasaseparatesegment.

IFRS 8.20-34 IFRS 8 contains a lengthy list of disclosure requirements for each period for which a statement of comprehensive income is presented, some of which are dependent on the nature of the information received by the CODM:

¬¬ measures of revenues from external customers and intra-segment transactions;¬¬ measures of profit or loss, assets and liabilities;¬¬ interests in the profit or loss of joint ventures and associates¬¬ disclosures of capital expenditure, interest, depreciation and amortisation;¬¬ material items; and ¬¬ reconciliations.

The previous sections have already covered a number of disclosure aspects of IFRS 8 in our survey findings. This section considers some of the specific disclosures required for reportable segments including:

¬¬ the basis used in determining segment measures ¬¬ the measure of profit or loss used by the CODM ¬¬ corporate assets and activities ¬¬ information about joint ventures and associates¬¬ whether any companies presented their segment information in a currency other than the

presentation currency used for presenting the financial statements¬¬ reconciliations and other disclosure requirements¬¬ discontinued operations¬¬ entity-wide disclosures.



3.5.1 Basis disclosed as being used for segment reporting

For 77 companies (95 percent) in our survey, the basis for segment measures was the same as the basis for the preparation of the financial statements themselves, i.e. IFRSs. However, in respect of three companies, while IFRS was the main basis for the measures disclosed, two companies (both in the Banking sector) disclosed that they used non-IAS 391 measurements for certain financial instruments in their segment measures, and a third company presented its segment measures based on a constant currency basis rather than an IFRS currency basis for both the current and comparative year (see Disclosure 24).

IFRS 8.26 This may indicate that IFRSs have now become embedded in internal management reporting. However, it may seem somewhat surprising that IFRS information is being used regularly by the CODM given some of the concerns occasionally raised about the complexity of IFRSs. Alternatively, the disclosed measures might have been influenced by the requirement of IFRS 8 that the disclosed measure be the one closest to IFRSs when two (or more) measures are used by the CODM.

As a result, the disclosure provided related to the accounting principles used in the segment disclosure information generally was straightforward, referring to the accounting policies used by the company in the preparation of the financial statements.

IFRS 8.25 Adjustments and eliminations made in preparing the entity’s financial statements, as well as allocations of revenue, expenses and gains or losses, are included in the reported segment profit or loss only if these items are included in the segment profit or loss measure used by the CODM.

IFRS 8.27 If a reconciling item results from an accounting policy used by an operating segment different from (b)-(d), (f) that used in the preparation of the entity’s financial statements, then additional disclosures about

the accounting policies used by the operating segment are required. Similarly, if a reconciling item results from an allocation method that is used by the entity, then additional disclosures about the nature and effect of any asymmetrical allocation to the operating segment are required.

The following extract illustrates a case in which adjustments were made to the measures used by the CODM in connection with the requirements of paragraph 25 of IFRS 8.

Disclosure 14: KBC Group NV

The figures in the segment reporting presentation have been prepared in accordance with the general accounting method used at KBC (see Note 1) and, therefore, comply with the International Financial Reporting Standards, as adopted for use in the European Union (endorsed IFRS). However, a number of changes have been made to this methodology in order to provide a better insight into the underlying business activities:

1 IAS 39 Financial Instruments: Recognition and Measurement



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Disclosure 14: KBC Group NV (continued)

¬¬ To arrive at the figure for underlying group profit, exceptional items that do not regularly occur during the normal course of business are eliminated. These items also include exceptional losses triggered by the financial crisis, such as those incurred on investments in structured credit, on amounts receivable from troubled banks (Lehman Brothers, Washington Mutual, the Icelandic banks), on equity investments and on trading positions that were unwound due to the discontinuation of activities at KBC Financial Products. In view of their exceptional nature and materiality, it is important to separate out these items in order to gain a full understanding of the results trend (for the impact on net profit, see table below).

¬¬ In the IFRS figures, many of the ALM hedging derivatives (i.e. those that do not qualify for fair value hedge accounting for a portfolio hedge of interest rate risk) are regarded as trading instruments and, consequently, interest relating to these instruments appears under ‘Net (un) realised gains from financial instruments at fair value’, whereas interest relating to the underlying assets appears under ‘Net interest income’. In the underlying figures, interest on these derivatives has therefore been moved to ‘Net interest income’ (the heading under which interest income generated by the underlying assets is recognised), without this having any impact on net profit.

¬¬ Moreover, the fair value changes (due to marking-to-market) of the above ALM hedging instruments appear under ‘Net (un)realised gains from financial instruments at fair value’, whereas most underlying assets are not recognised at fair value (i.e. not marked-to-market). Hence, the fair value changes of these instruments are excluded from the underlying figures (for the impact on net profit, see table below).

¬¬ In the IFRS figures, income from market activities is divided up among different components. While trading profit is recognised under ‘Net (un)realised gains from financial instruments at fair value’, the funding costs and the fees and commission paid to realise this trading profit are recognised under ‘Net interest income’ and ‘Net fee and commission income’, respectively. Moreover, some ‘Dividend income’, ‘Net realised gains from available-for-sale assets’ and ‘Other net income’ also relates to market activities. In the underlying figures, all market-activity-related components have been grouped together under ‘Net (un)realised gains from financial instruments at fair value’, without this having any impact on net profit.

¬¬ Lastly, the IFRS figures take into account the effect of changes in own credit spreads when measuring the fair value of financial liabilities designated at fair value through profit or loss. Since this is a non-operating item, its impact is excluded from the underlying figures (for the impact on net profit, see table below).

Source: KBC Group NV, Annual Report 2009, p. 106.

3.5.2 Measure of profit or loss used by the CODM



Based on our survey, companies disclosed a variety of segment measures of profit or loss; reflecting differing degrees of inclusivity of certain items of income or expense. When the composition of the segment measure was clear, more than half used measures that excluded interest and tax. About a quarter also excluded depreciation and amortisation. Nearly a fifth excluded other items from the measure used by the CODM, removing specific items such as impairment losses on loans (Banking sector), special items, exceptional items, non-recurring items, restructurings and impairments of non-financial assets.

Nearly a quarter used an ”other“ measure (i.e. a measure other than operating profit, EBIT, EBITDA or an adjusted version of these) such as profit before tax, adjusted profit before tax, replacement cost EBIT, profits calculated on a constant currency basis or gross profit.

The 23 percent of cases for which the segment measure was not clear reflects the fact that some companies were not explicit in their disclosures about how they measured segment profit. Such companies often disclosed multiple profit measures and in some cases the whole of the statement of comprehensive income was analysed into the different segments.

There was greater consistency of segment measures of profit or loss at the sector level:

¬¬ 80 percent of Communications and Media companies used EBITDA or adjusted EBITDA; ¬¬ 50 percent of Diversified Industrials companies used operating profit; ¬¬ 75 percent of Automotive companies used operating profit or adjusted operating profit; ¬¬ 80 percent of Insurance companies used operating profit or adjusted operating profit; and ¬¬ 77 percent of Banking companies presented an analysis of their whole statement of

comprehensive income by reportable segment, thereby disclosing multiple measures of segment profit or loss.

The following extract illustrates an example of disclosure of the measure used in assessing reportable segments as well as what comprises the measure used and the reasons why management used this measure.

Disclosure 15: Vivendi S.A.

Vivendi Management evaluates the performance of the operating segments and allocates necessary resources to them based on certain operating indicators (segment earnings and cash flow from operations).

Vivendi considers EBITA, a non-GAAP measure, to be the key operating performance measure of its operating segments as reported in the segment data. The method used in calculating EBITA excludes the accounting impact of the amortization of intangible assets acquired through business combinations. This enables Vivendi to measure the operating performance of the operating segments on a comparable basis, regardless of whether their performance was driven by the company’s internal growth or by acquisitions and without accounting amortizations with no cash flow effect.

The difference between EBITA and EBIT consists of the amortization of intangible assets acquired through business combinations and the impairment of goodwill and other intangibles acquired through business combinations that are included in EBIT.

Source: Vivendi S.A., Annual Report 2009, p. 186.

IFRS 8.26 When a company uses two measurement bases for evaluating the performance of its operating segments, the measure that is required to be presented is the measure that is the most consistent with the measurement principle used in the financial statements, i.e. IFRSs. Most of the



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companies surveyed that disclosed that the CODM used more than one segment performance measure, chose to disclose multiple measures rather than a single measure.

Disclosure 16: Deutsche Bahn AG

The adjusted segment result (EBIT adjusted) is used for internal management of DB Group and its segments. Aspects which are of an exceptional nature are adjusted from segment result and operating result (EBIT). A general adjustment is recognized to reflect the income and expenses attributable to the disposal of financial instruments. An adjustment is also recognized if an individual adjustment is of an exceptional and non-operational nature and if the extent of the impact on earnings is significant.

Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is also significant for internal management purposes. This parameter is derived from adjusted EBIT, by adding the depreciation and amortization – where appropriate adjusted by the exceptional factors included in this item.

Source: Deutsche Bahn AG, Annual Report 2009, pp. 244-245.

3.5.3 Disclosure of corporate assets and activitiesIFRS 8.6 Under IFRS 8 not every part of an entity has to meet the definition of an operating segment or be

part of an operating segment. A corporate headquarter likely would carry out some or all of the functions in the treasury, legal, accounting, information systems and human resources areas. In certain situations these corporate activities might even be reflected as a separate business unit for internal reporting purposes. However, corporate activities generally would not qualify as operating segments under IFRS 8, because typically they are not business activities from which the entity may earn revenues.

Nevertheless, situations might exist in which a corporate activity may qualify as an operating segment. For example, if sufficient and discrete financial information exists for a research and development (R&D) activity and is reviewed by the CODM, the R&D activity is not incidental to the entity, and the R&D activity is capable of earning revenues, then the R&D activity or function may qualify as an operating segment.

Corporate assetsIFRS 8.16 An issue that arises in the application of IFRS 8 is how to disclose the information about corporate

assets and activities.

Only two companies disclosed clearly that the corporate assets and activities had been allocated to the reportable segments in information reported to the CODM.

The following extract illustrates disclosure of corporate activities allocated to the operating segments.

Disclosure 17: Renault SA

The information by operating segment is based on internal reporting to the Group Executive Committee, identified as the “Chief Operating Decision-Maker” as defined by IFRS 8. This information is prepared under the IFRSs applicable to the consolidated financial statements. All Group financial data are assigned to the operating segments.

Source: Renault SA, Consolidated Financial Statements 2009, p. 18.



Practice by other companies varied. Some reported separate columns under titles such as “Corporate Centre”. Others included corporate assets and activities within “Other” or “Corporate and Other”. The rest included them within separate columns labelled, for example, as “Other/elimination”, “Corporate Centre and Consolidation” or “Head Office/eliminations”, or included them within the reconciliations required by IFRS 8.

IFRS 8.28 Generally, the reconciliations specified by IFRS 8 rarely were presented in the form illustrated within the Implementation Guidance to IFRS 8. Most companies surveyed presented columnar tables for the segment disclosures and included as the penultimate column (i.e. immediately before the total column that agrees to the relevant IFRS amounts) an eliminations/consolidation column.

The following extract illustrates disclosure of corporate activities presented as a separate column.

Disclosure 18: ThyssenKrupp AG

Corporate includes the Group’s head office and internal service providers as well as inactive companies which could not be assigned to an individual segment. In addition, the non-operating property is managed and utilized centrally by Corporate. Also the retained assets and liabilities of ThyssenKrupp Budd were assigned to Corporate.

INFORMATION BY SEGMENTS million €Steel Stainless Technologies Elevator Services Corporate Consolidation Group

For the fiscal year ended Sept. 30, 2009

External sales 9.046 4.087 10.576 5.304 11.452 98 0 40.563

Internal sales within the Group 899 399 64 4 444 29 (1,839) 0

Total sales 9,945 4,486 10,640 5,308 11,896 127 (1,839) 40,563

Equity in the net income of investees accounted for using the equity method (24) 0 7 1 (12) 0 (1) (29)

Aggregate investment in investees accounted for using the equity method 249 14 150 1 61 6 0 481

Interest income 134 25 224 40 120 680 (960) 263

Interest expense (370) (106) (256) (50) (204) (938) 960 (964)

Income/(loss) before income taxes (486) (946) (868) 558 (271) (344) (7) (2,364)

Segment assets 20,199 5,255 15,352 4,999 6,959 25,136 (36,533) 41,367

Depreciation and amortization expense 612 157 361 66 157 27 0 1,380

Impairment losses of intangible assets, property, plant and equipment and investment property 26 107 307 3 0 3 0 446

Impairment losses of investments accounted for using the equity method and of financial assets 0 0 30 0 1 0 0 31

Reversals of impairment losses of intangible assets, property, plant and equipment and investment property 0 0 1 0 0 1 0 2

Segment liabilities 15,820 4,574 13,362 3,396 4,952 26,937 (37,370) 31,671

Significant non-cash items (283) (77) (544) (124) (222) (8) (1) (1,259)

Capital expenditures (intangible assets, property, plant, equipment and investment property) 2,593 343 814 135 210 126 17 4,238

Source: ThyssenKrupp AG, Annual Report 2008/2009, p. 233



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The following extract illustrates disclosure of corporate activities within the reconciliation items.

Disclosure 19: Volkswagen AG

The reconciliation contains activities that do not by definition form part of the operating segments. It also contains all of the unallocated Group financing activities that were previously included in the Automotive segment.

OPERATING SEGMENTS 2009

E million

Passenger Cars and Light

Commercial Vehicles Scania

Volkswagen FinancialServices

Totalsegments Reconciliation

Volkswagen Group

Sales revenue from external customers 86,297 6,385 11,095 103,777 1,409 105,187

Intersegment sales revenue 4,952 – 565 5,517 –5,517 –

Total sales revenue 91,249 6,385 11,660 109,294 –4,107 105,187

Depreciation and amortization 5,793 490 3,727 8,009 322 8,331

Impairment losses 292 3 261 556 39 595

Reversal of impairment losses 18 – 30 49 – 49

Segment profit or loss (operating profit or loss) 2,020 236 606 2,862 –1,007 1,855

Share of profits and losses of equity-accounted investments 106 1 91 198 503 701

Net interest income and other financial result –587 –82 –25 –694 –602 –1,296

Segment results 87,786 9,512 76,431 173,730 3,449 177,178

Equity-accounted investments 370 46 1,562 1,978 8,406 10,385

Investments in intangible assets, property, plant and equipment, and investment property 7,331 320 178 7,829 82 7,911

Source: Volkswagen AG, Annual Report 2009, p. 230.

Research and development From the sectors surveyed we considered how R&D expenses were treated in the Automotive and

Pharmaceutical sectors. These sectors were selected due to the high relevance of R&D to their activities.

In the Pharmaceutical sector one company presented R&D as a separate segment. Other companies in this sector allocated R&D expenses to the “other reportable segments” category. Of the five companies that allocated R&D expenses to reportable segments, four included a line item in the presentation of the segment reportable measure showing the amount of R&D expenses.

In the Automotive sector there were no instances in which R&D was presented as a reportable segment. However, in an approach similar to that adopted by Pharmaceutical companies, one company presented R&D expenses separately by reportable segment.



The following extract illustrates the separate disclosure of R&D.

Disclosure 20: GlaxoSmithKline plc

R&D investment is essential for the sustainability of the pharmaceutical businesses. However, for segment reporting, the USA, Europe, Emerging Markets and Asia Pacific/Japan regional pharmaceutical operating profits exclude allocations of globally funded R&D as well as central costs, principally corporate functions and unallocated manufacturing costs. GSK’s management reporting process allocates all intra-Group profit on a product sale to the market in which that sale is recorded, and the profit analyses below have been presented on that basis.

Turnover by segment 2009

£m

2008 (restated)

£m

2007 (restated)

£m

US pharmaceuticals 9,180 8,894 9,273

Europe pharmaceuticals 7,681 6,483 5,560

Emerging Markets pharmaceuticals 2,973 2,290 1,895

Asia Pacific/Japan pharmaceuticals 2,700 1,918 1,701

Other trading pharmaceuticals 1,180 796 734

Pharmaceuticals turnover 23,714 20,381 19,163

Consumer Healthcare turnover 4,654 3,971 3,553

28,368 24,352 22,716

Segment profit 2009

£m

2008 (restated)

£m

2007 (restated)

£m

US pharmaceuticals 6,420 5,947 6,364

Europe pharmaceuticals 4,509 3,765 3,110

Emerging Markets pharmaceuticals 1,048 947 686

Asia Pacific/Japan pharmaceuticals 1,424 1,078 896

Other trading pharmaceuticals 490 476 358

Pharmaceuticals R&D (3,082) (2,875) (2,707)

Other unallocated pharmaceuticals costs (1,334) (726) (841)

Pharmaceuticals operating profit 9,475 8,612 7,866

Consumer Healthcare operating profit 952 881 805

Segment profit 10,427 9,493 8,671

Corporate and other unallocated costs and disposal profits (1,170) (1,234) (740)

Operating profit before major restructuring 9,257 8,259 7,931

Major restructuring (832) (1,118) (338)

Total operating profit 8,425 7,141 7,593

Finance income 70 313 262

Finance costs (783) (843) (453)

Profit on disposal of interest in associate 115 – –

Share of after tax profits of associates and joint ventures 64 48 50

Profit before taxation 7,891 6,659 7,452

Taxation (2,222) (1,947) (2,142)

Profit after taxation for the year 5,669 4,712 5,310



35

Disclosure 20: GlaxoSmithKline plc (continued)

Depreciation and amortisation by segment 2009

£m

2008 (restated)

£m

2007 (restated)

£m

US pharmaceuticals 112 110 46

Europe pharmaceuticals 37 36 31

Emerging Markets pharmaceuticals 39 22 18

Asia Pacific/Japan pharmaceuticals 21 10 11

Other trading pharmaceuticals 58 4 5

Pharmaceuticals R&D 363 318 334

Other unallocated pharmaceuticals 623 541 479

Pharmaceuticals depreciation and amortisation 1,253 1,041 924

Consumer Healthcare depreciation and amortisation 63 60 44

Segment depreciation and amortisation 1,316 1,101 968

Corporate and other unallocated depreciation and amortisation 78 77 54

Depreciation and amortisation before major restructuring 1,394 1,178 1,022

Major restructuring 168 53 –

Total depreciation and amortisation 1,562 1,231 1,022

Source: GlaxoSmithKline plc, Annual Report 2009, pp. 107-108.

The following extract illustrates disclosure of R&D separately by reportable segment.

Disclosure 21: AB Volvo

Research and development expenses 2008 2009

Trucks 10,253 9,525

Construction Equipment 2,134 1,982

Buses 953 918

Volvo Penta 695 665

Volvo Aero 269 170

Other 44 (67)

Volvo Group total 14,348 13,193

Source: AB Volvo, Annual Report 2009, p. 81.

3.5.4 Disclosure of information about joint ventures and associates A jointly controlled entity, jointly controlled operations or an associate (an “investee”) could qualify

as an operating segment under IFRS 8. Unilateral control over the investee’s activities or control over the performance of the investee is not required in order to satisfy the definition of an operating segment under IFRS 8. Management might review regularly the operating results and performance of the investee for purposes of evaluating whether to retain the investor-investee relationship. IFRS 8 does not require that the CODM be responsible for making decisions about resources to be allocated within the segment, but rather for resources to be allocated to the segment.

To determine if an investee qualifies as an operating segment, an entity should consider whether or not the CODM is making resource allocation decisions (i.e. whether to make additional investments, loans or advances to the investee, or to sell any portion of its interest in the investee) and is evaluating the financial performance of the investee. In our view, if primary responsibility for either of these functions resides at a lower level within the entity’s organisation, then the investment might not necessarily qualify as an operating segment.



Only two companies surveyed treated the share of results from joint ventures and/or associates as a separate reportable segment. Another 29 companies (36 percent) included their share of results from joint ventures and associates as part of the reportable segment measures, while 18 companies (22 percent) excluded it from their reportable segment measure. However, for 29 companies (36 percent) it was not clear whether any amount was included within the reportable segment measure; this high percentage is due partly to the 23 percent of companies surveyed being unclear as to what their segment result is (see 3.5.2).

The approach taken by the two companies that disclosed the share of results from investees as a separate reportable segment was different. One presented the total revenues and costs related to the investee’s operations (the amount subsequently was deducted in the reconciliation column), while the other entity presented only its share in the gain or loss on the investee operations as segment information. This reflects the fact that in the first case the CODM received and reviewed the financial statements of the investee, while in the second case the information reviewed and used by the CODM referred only to the share that it held in the investee. The extracts from the financial statements below show both approaches used.



37

Disclosure of joint venture operations as a reportable segment presenting total revenues and expenses.

Disclosure 22: Telefonaktiebolaget L.M. Ericsson

Sony Ericsson, consisting of the joint venture Sony Ericsson Mobile Communications. Sony Ericsson delivers innovative and feature-rich mobile phones and accessories.

ST-Ericsson, consisting of the joint venture ST-Ericsson. ST-Ericsson is an industry leader in design, development, and creation of cutting-edge mobile platforms and wireless semiconductors. ST-Ericsson was formed on February 2, 2009, by merging ST-NXP Wireless and Ericsson Mobile Platforms.

OPERATING SEGMENTS

2009

Networks Professional Services

Multi- media

SonyEricsson

ST - Ericsson

TotalSegments

Unallo-cated

Elimi-nations 1)

Group

Segment sales 136,312 56,065 12,996 71,984 13,535 290,892 – –85,519 205,373

Inter–segment sales 770 58 276 164 5,731 6,999 – –5,895 1,104

Net sales 137,082 56,123 13,272 72,148 19,266 297,891 – –91,414 206,477

Operating income 6,879 2) 6,990 1) 655 –10,820 –2,615 1,089 –855 5,684 5,918

Operating margin (%) 5% 12% 5% –15% –14% 0% – – 3%

Financial income 1,874

Financial expenses –1,549

Income after financial items 6,243

Taxes –2,116

Net income 4,127

Other segment items

Share in earnings of joint ventures and associated companies

37 33 –1 –5,693 –1,762 –7,386 –14 – –7,400

Amortization –2,673 –574 –910 –165 –828 –5,150 – 941 –4,209

Depreciation –2,768 –627 –155 –1,124 –997 –5,671 – 2,121 –3,550

Impairment losses –4,333 2) – –80 – –46 –4,459 – 46 –4,413

Reversals of impairment losses

38 9 2 – – 49 – – 49

Restructuring expenses –8,748 2) –2,044 –385 –1,754 –890 –13,821 –82 1,322 –12,581

Gains/losses from divestments 10 777 1) 41 – 47 875 –32 – 843

Total assets 116,226 33,515 17,650 33,586 22,187 223,164 92,101 –45,456 269,809

1) Sony Ericsson and ST-Ericsson are accounted for in accordance with the equity method. The difference between what is reported to the CODM and externally is eliminated.

Source: Telefonaktiebolaget L.M. Ericsson, Annual Report 2009, pp. 50-51.



Disclosure of joint venture operations separately presenting the share held in the joint venture.

Disclosure 23: Siemens AG

Equity investmentsEquity Investments is a reportable segment with its own management. Equity Investments contains investments accounted for under the equity method or at cost and current available for sale financial assets, which are not allocated to a Sector, Cross-Sector Business, SRE, Pensions or Treasury. As of September 30, 2009 and 2008, NSN, BSH and EN (see Note 4) are, among others, reported in Equity Investments. FSC, as of September 30, 2008 reported in Equity Investments, was sold in fiscal 2009.

As of and for the fiscal years ended September 30, 2009 and 2008

New orders External revenue Intersegment revenue Total revenue

(in millions of €) 2009 2008 2009 2008 2009 2008 2009 2008

Sectors

Industry 33,284 42,374 33,915 36,526 1,128 1,127 35,043 37,653

Energy 30,076 33,428 25,405 22,191 388 386 25,793 22,577

Healthcare 11,950 11,779 11,864 11,116 63 54 11,927 11,170

Total Sectors 75,310 87,581 71,184 69,833 1,579 1,567 72,763 71,400

Equity Investments – – – – – – – –

Cross-Sector Businesses

Siemens IT Solutions and Services 4,501 5,272 3,580 3,845 1,106 1,480 4,686 5,325

Siemens Financial Services (SFS) 778 756 663 675 114 81 777 756

Reconciliation to Consolidated Financial Statements

Other Operations 714 2,899 787 2,454 49 448 836 2,902

Siemens Real Estate (SRE) 1,763 1,665 364 388 1,399 1,277 1,763 1,665

Corporate items and pensions 140 167 73 132 67 16 140 148

Eliminations, Corporate Treasury and other reconciling items (4,215) (4,845) – – (4,314) (4,869) (4,314) (4,869)

Siemens 78,991 93,495 76,651 77,327 – – 76,651 77,327

Source: Siemens AG, Annual Report 2009, Vol. 2, pp. 128-129.



39

Profit

Assets Free cash flow Additions to intangible assets and property, plant and

equipment

Amortization, depreciation and impairments

2009 2008 9/30/2009 9/30/2008 2009 2008 2009 2008 2009 2008

2,701 3,947 10,551 11,923 3,340 3,807 833 1,239 1,077 1,130

3,315 1,434 1,594 913 2,523 2,940 662 681 385 345

1,450 1,225 12,813 13,257 1,743 1,195 539 541 654 640

7,466 6,606 24,958 26,093 7,606 7,942 2,034 2,461 2,116 2,115

(1,851) 95 3,833 5,587 236 148 – – – –

90 144 241 241 1 156 114 158 180 224

304 286 11,704 11,328 330 (50) 454 564 320 285

(372) (453) (939) (1,468) (255) (228) 54 108 74 200

341 356 4,489 3,489 3 (42) 298 259 181 161

(1,714) (3,860) (7,049) (6,483) (2,744) (1,807) 20 41 38 97

(373) (300) 57,689 55,676 (1,391) (380) (51) (49) (70) (67)

3,891 2,874 94,926 94,463 3,786 5,739 2,923 3,542 2,839 3,015



3.5.5 Presentation of segment information in currencies other than the presentation currency

All 81 companies surveyed presented their segment information in the same currency as the presentation currency of the financial statements. This suggests that the CODM received information on all operating segments, translated to the group’s presentation currency, regardless of their actual functional currencies.

One company explained that management adjusts the information received from its subsidiaries, associates and joint ventures to reflect the performance in the current year as if exchange rates had not changed.

Disclosure 24: British American Tobacco p.l.c.

The Management Board reviews current and prior year information of subsidiaries and associates and joint ventures at constant rates of exchange which provides an approximate guide to performance in the current year if exchange rates had not changed from the prior year. The constant rate comparison provided for reporting segment information is based on a retranslation, at prior year exchange rates, of the current year results of the Group’s overseas entities. It does not adjust for the normal transactional gains and losses in operations which are generated by exchange rate movements. As a result, the 2009 segmental results are translated using the 2008 average rates of exchange. The 2008 comparative figures are also stated at the 2008 average rates of exchange.

The tables below represent the new regional structure effective from 1 January 2009, as previously disclosed in the Annual Report for the year ended 31 December 2008.

The analyses of revenue for the 12 months to 31 December 2009 and 31 December 2008, based on location of sales, are as follows:

2009 2008

Revenue Translation Revenue

Constant rates exchange Current rates Revenue

£m £m £m £m

Asia-Pacific 2,877 393 3,270 2,717

Americas 2,991 165 3,156 2,863

Western Europe 3,523 361 3,884 3,218

Eastern Europe 1,744 (116) 1,628 1,594

Africa and Middle East 2,145 125 2,270 1,730

Revenue 13,280 928 14,208 12,122

Source: British American Tobacco p.l.c., Annual Report 2009, p. 121.

3.5.6 Reconciliations and other disclosure requirementsIFRS 8.21 IFRS 8 requires an entity to disclose for each period for which a statement of comprehensive

income is presented:

¬¬ general information about factors used to identify the entity’s reportable segments and the types of products and services from which each reportable segment generates its revenues;

¬¬ information about profit or loss, assets and liabilities; and ¬¬ reconciliations.



41

The following extract illustrates disclosure of types of products and services from which each reportable segment generates its revenues.

Disclosure 25: Continental AG

Notes to segment reportingIn accordance with the provisions of IFRS 8, Operating Segments, Continental AG’s segment reporting is based on the management approach with regard to segment identification, under which information regularly provided to the chief operating decision maker for decision-making purposes is considered as decisive. The segments are also evaluated under the management approach.

The Continental Corporation’s activities are carried out by the divisions as follows:

Chassis & SafetyThe core of the Chassis & Safety division is a large portion of the business of the former Automotive Systems division. This division combines the active and passive safety activities and driver assistance systems of both companies.

PowertrainThe Powertrain division stands for innovative and efficient systems solutions for vehicle drivetrains. The former business areas of the Continental Corporation and Siemens VDO were united to form this division.

InteriorThe focus of the Interior division is information management between the vehicle, driver, and passengers, between vehicles, and between the vehicle and the environment. This division was formed from complementary operating units at the Continental Corporation and Siemens VDO.

Passenger and Light Truck TiresThe Passenger and Light Truck Tires division develops, manufactures, and distributes passenger and light truck tires for compact, medium-size, and full-size oars as well as tires for vane. Extended mobility systems are also included in this division. Motorcycle and bicycle tires are also included in this division, as well as Continental’s own retail tire companies.

Commercial Vehicle TiresThe Commercial Vehicle Tires division offers truck, bus, industrial, and off-the-road tires for the most diverse service areas and application requirements.

ContiTechThe ContiTech division is one of the world’s biggest specialists in the field of rubber and plastics technology outside of the tire industry. The division develops and produces functional parts, components, and systems for the automotive industry and for other key sectors, such as the rail and printing industries, as well as mining, and machinery and equipment construction.

Other/consolidationThis comprises centrally managed subsidiaries and affiliates, such as holding, financing, and insurance companies, as well as the holding function of Continental AG and certain effects of consolidation. It also contains the effects on earnings of uncertain risks, particularly those in connection with contractual and similar claims or obligations representing, among other things, risks from investments currently not assignable to the individual operating units.

Source: Continental AG, Annual Report 2009, p. 226.

IFRS 8.23 An entity discloses a measure of profit or loss and total assets for each reportable segment, and a measure of liabilities for each reportable segment if such amounts are provided regularly to the CODM. An entity also discloses the following about each reportable segment if the specified amounts are



included in the measure of segment profit or loss reviewed by the CODM or are otherwise provided regularly to the CODM, even if not included in that measure of segment profit or loss:

¬¬ revenues from external customers;¬¬ revenues from transactions with other operating segments of the same entity;¬¬ interest revenue;¬¬ interest expense;¬¬ depreciation and amortisation;¬¬ material items of income and expense disclosed in accordance with IAS 1 Presentation of

Financial Statements;¬¬ equity accounted earnings;¬¬ income tax; and¬¬ material non-cash items other than depreciation and amortisation.

The following extract illustrates disclosure of information about profit or loss, assets and liabilities.

Disclosure 26: BP p.l.c.

$ million

2009

By business

Exploration and

ProductionRefining and

Marketing

Other businesses

and corporate

Consolidation adjustment

and eliminations Total group

Segment revenues

Sales and other operating revenues 57,626 213,050 2,843 (34,247) 239,272IFRS 8.23.b Less: sales between businesses (32,540) (821) (886) 34,247 –IFRS 8.23.a Third party sales and other operating revenues 25,086 212,229 1,957 – 239,272IFRS 8.23.g Equity-accounted earnings 3,309 558 34 – 3,901IFRS 8.23.c Interest revenues 98 32 95 – 225

Segment resultsIFRS 8.23 Replacement cost profit (loss) before interest and

taxation 24,800 743 (2,322) (717) 22,504

Inventory holding gainsa 142 3,774 6 – 3,922

Profit (loss) before interest and taxation 24,942 4,517 (2,316) (717) 26,426IFRS 8.23.d Finance costs (1,110)

Net finance expense relating to pensions and other post-retirement benefits (192)

Profit before taxation 25,124

Other income statement itemsIFRS 8.23.e Depreciation, depletion and amortization 9,557 2,236 313 – 12,106

Impairment losses 118 1,834 189 – 2,141IFRS 8.23.f Impairment reversals 3 – 8 – 11

Fair value (gain) loss on embedded derivatives (664) 57 – – (607)

Charges for provisions, net of write-back of unused provisions, including change in discount rate 307 756 488 – 1,551

Segment assetsIFRS 8.23 Segment assets 140,149 82,224 17,954 (5,084) 235,243

Current tax receivable 209

Deferred tax assets 516

Total assets 235,968

IncludesIFRS 8.23.a Equity-accounted investments 20,289 6,882 1,088 – 28,259

Additions to non-current assets 15,855 4,083 1,297 – 21,235

Additions to other investments 19

Element of acquisitions not related to non-current assets (7)

Additions to decommissioning asset (938)IFRS 8.24.b Capital expenditure and acquisitions 14,896 4,114 1,299 – 20,309

* we have indicated references to the relevant disclosure requirements of IFRS 8 to the left of each item disclosed in this example to illustrate the source of the presented amounts.

Source: BP p.l.c., Annual Report and Accounts 2009, p. 127.



43

IFRS 8.23 IFRS 8 was amended during the Improvements to IFRSs 2009 to clarify that segment information with respect to total assets is disclosed only if such information is regularly reported to the CODM. This amendment is effective for annual periods beginning on or after 1 January 2010; early application is permitted. Segment assets usually were disclosed by the companies surveyed, and none of the companies disclosed that they had early adopted the amendment.

In relation to segment liabilities, 47 companies of the 81 surveyed (58 percent) disclosed information related to total segment liabilities.

IFRS 8.23(f) In addition, IFRS 8 requires the disclosure of material items of income and expense. The disclosure of such material items can be done in a tabular format (which was the more usual approach) as shown above or in form of a narrative text as illustrated in the following disclosure.

The following extract illustrates disclosure of material items of income and expense.

Disclosure 27: Daimler AG

Mercedes-Benz Cars. As a result of the agreement with McLaren Group Ltd. in November 2009 to change the form of cooperation, the Group incurred a pre-tax expense of €87 million (see also Note 34). Also in 2009, a risk sharing agreement between Daimler and its independent dealers in connection with residual values was modified, which resulted in a pre-tax expense of €79 million (see also Note 13).

In 2008, as a result of the reassessment of residual values of leased vehicles, the Group recorded non-cash effective impairment charges of €465 million. In addition, an amendment of a defined benefit plan resulted in past service income of €84 million.

Daimler Trucks. In 2009 and 2008, expenses of €95 million and €233 million, respectively, associated with the decision to optimize and reposition the business operations of Daimler Trucks North America are included in the segment’s EBIT. Of these amounts, €68 million and €32 million, respectively, relate to non-cash charges (see also Note 4). The decision made in 2009 for a major realignment of the business operations of Mitsubishi Fuso Truck and Bus Corporation (MFTBC) led to charges of €245 million in 2009. From this amount, €50 million relate to non-cash charges (see also Note 4).

In 2008, an amendment of a defined benefit plan resulted in past service income of €29 million.

In 2007, EBIT was positively impacted by a gain of €78 million from the disposal of real-estate properties (see also Note 2).

Furthermore, changes to existing pension plans at MFTBC resulted in a curtailment gain of €86 million in 2007.

Daimler Financial Services. In 2009, EBIT includes expenses of €100 million from the sale of non-automotive assets and from the valuation of assets held for sale (see Notes 2 and 18).

Source: Daimler AG, Consolidated Financial Statements 2009, p. 243.

IFRS 8.24(b) IFRS 8 requires the disclosure of the amounts of additions to non-current assets other than financial instruments, deferred tax assets, post-employment benefits assets and rights arising from insurance contracts, if such amounts are included in the measure of segment assets or regularly provided to the CODM.

The approaches taken for the disclosure of such information varied. Our survey showed that companies often included a line item in the segment disclosure for “Capital expenditures and acquisitions” (see Disclosure 26) while in another case the disclosure was made in a separate table (see Disclosure 28).



The following extract illustrates disclosure of information about additions to non-current assets.

Disclosure 28: CRH plc

Continuing operations—year ended 31st December

Materials Products Distribution Total Group

2009 2008 2007 2009 2008 2007 2009 2008 2007 2009 2008 2007

€m €m €m €m €m €m €m €m €m €m €m €m

Additions to non-current assets

Europe Property, plant and

equipment (note 13) ...... 260 429 291 51 106 153 42 70 72 353 605 516

Financial assets

(note 15) ........................ 235 1 — — — 2 1 157 1 236 158 3

Americas Property, plant and

equipment (note 13) ...... 125 304 334 51 121 159 3 9 19 179 434 512

Financial assets

(note 15) ........................ 8 48 37 — — — — — — 8 48 37

628 782 662 102 227 314 46 236 92 776 1,245 1,068

Source: CRH plc, Annual Report 2009, p. F-25.

Our survey showed that the presentation of additional cash flow information by reportable segment was not common, with only one company presenting such information.

The following extract illustrates additional disclosure of cash flow by reportable segment.

Disclosure 29: Renault SA

(€ million) Automobile Sales financing

Intersegment transactions

Consolidated total

2009

Net income (3,111) 337 (294) (3,068)

Cancellation of unrealised income and expenses

- Amortisation and impairment 3,124 30 (8) 3,146

- Share in net (income) loss of associates 1,566 (5) - 1,561

- Dividends received from associates 81 - - 81

- Other unrealised income and expenses (193) 183 5 (5)

Cash flow 1,467 545 (297) 1,715

Decrease (increase) in sales financing receivables - 76 175 251

Net change in financial assets and Sales Financing debts - 1,366 11 1,377

Change in capitalised leased vehicles (248) (9) 1 (256)

Decrease (increase) in working capital 2,923 33 (3) 2,953

CASH FLOWS FROM OPERATING ACTIVITIES 4,142 2,011 (113) 6,040

Purchases of intangible assets (670) (16) - (686)

Purchases of property, plant and equipment (1,620) (3) - (1,623)

Disposals of property, plant and equipment and intangibles 236 - - 236

Acquisition of investments, net of disposals and other (86) - - (86)

Net decrease (increase) in other securities and loans of the Automobile segment 81 - (16) 65

CASH FLOWS FROM INVESTING ACTIVITIES (2,059) (19) (16) (2,094)

Cash flows with shareholders 105 (302) 302 105

Net change in financial liabilities of the Automobile segment 2,017 - (160) 1,857

CASH FLOWS FROM FINANCING ACTIVITIES 2,122 (302) 142 1,962

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,205 1,690 13 5,908

Source: Renault SA, Consolidated Financial Statements 2009, p. 12.

{



45

ReconciliationsIFRS 8.28 An entity is required to provide reconciliations of:

¬¬ the total of the reportable segments’ revenues to the entity’s revenues in the financial statements;¬¬ the total of the reportable segments’ measures of profit or loss to the entity’s profit or loss

before income tax and discontinued operations in the financial statements; however, if an entity allocates to reportable segments items such as income tax, then the entity may reconcile the total of the segments’ measures of profit or loss to the entity’s profit or loss after those items;

¬¬ the total of the reportable segments’ assets to the entity’s assets in the financial statements;¬¬ the total of the reportable segments’ liabilities to the entity’s liabilities in the financial statements

if segment liabilities are reported to the CODM; and¬¬ the total of the reportable segments’ amounts for every other material item of information

disclosed to the corresponding amount in the entity’s financial statements.

The approaches used by companies in the survey to comply with the reconciliation requirements varied, with the majority of companies presenting the reconciliation items in the table together with the other information related to the reportable segments; in other cases the reconciliation was presented separately. These approaches are illustrated in the two examples below.

The following extract illustrates disclosure of reconciliation requirements as part of the reportable segment information table.

Disclosure 30: Statoil ASA

(in NOK million)

Exploration

and

Production

Norway

International

Exploration

and

Production Natural Gas

Manufactur-

ing and

Marketing

Other Eliminations Total

Year ended 31 December 2009

Revenues third party and Other income 4,153 12,301 96,973 348,941 1,287 0 463,655

Revenues inter-segment 154,431 28,459 1,241 2,014 2,295 (188,440) 0

Net income from associated companies 79 1,075 399 280 (55) 0 1,778

Total revenues and other income 158,663 41,835 98,613 351,235 3,527 (188,440) 465,433

Net operating income 104,318 2,599 18,488 (541) (1,146) (2,078) 121,640

Significant non-cash items recognised in

segment profit or loss

- Depreciation and amortisation 25,653 16,231 1,778 2,390 687 0 46,739

- Impairment losses 0 873 1,001 5,369 74 0 7,317

- Inventory valuation 0 0 (24) (5,171) 0 1,377 (3,818)

- Commodity based derivatives (1,781) 0 (2,814) 1,072 (122) 0 (3,645)

- Exploration expenditure written off 1,177 5,821 0 0 0 0 6,998

Investments in associated companies 214 4,962 2,829 917 1,134 0 10,056

Other segment non-current assets 175,998 152,678 34,797 28,587 3,028 0 395,088

Non-current assets, not allocated to

segments*

41,312

Total non-current assets 446,456

Additions to PP&E and intangible assets** 34,875 39,354 2,528 7,618 1,340 0 85,715

* Deferred tax assets, post employment benefit assets and non-current financial instruments are not allocated to segments.** Excluding movements due to changes in abandonment and removal obligations.

Source: Statoil ASA, Annual report on Form 20-F 2009, p. 221.



The following extract illustrates disclosure of reconciliation requirements in a separate table.

Disclosure 31: Volkswagen AG

RECONCILIATION

E million 2009 2008

Segment sales revenue 109,294 117,988

Unallocated activities 2,078 1,627

Group financing 21 24

Consolidation adjustments –6,207 –5,831

Group sales revenue 105,187 13,808

Source: Volkswagen AG, Annual Report 2009, p. 230.

IFRS 8.21, 28 Reconciliations of profit or loss amounts for the total of reportable segments to the amounts reported in the entity’s financial statements are required for each period for which a statement of comprehensive income is presented.

The following extract illustrates disclosure of a reconciliation of segment measures of profit or loss.

Disclosure 32: ArcelorMittal SA

The reconciliation from operating income (loss) to net income is as follows: Year Ended

December 31,2008*

Year EndedDecember 31,

2009

Operating income (loss) 12,325 (1,678)

Income from investments in associates and joint ventures 1,653 58

Financing costs – net (2,352) (2,817)

Income (loss) before taxes 11,626 (4,437)

Income tax expense (benefit) 1,128 (4,512)

Net income (including non-controlling interests) 10,498 75

Source: ArcelorMittal SA, Annual Report 2009, p. 82.

Some companies voluntarily disclosed the reconciliation for each reportable segment rather than for the total of all reportable segments.



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Disclosure 33: Zurich Financial Services Ltd

Table 30.2

Reconciliation of BOP to net income after income taxes

in USD millions, for the years ended December 31 General Insurance Global Life

2009 2008 2009 2008

Business operating profit 3,463 3,535 1,477 1,490

Revenues/(expenses) not included in BOP:

Net capital gains/(losses) on investments and impairments, net of policyholder allocation

(674) (1,172) (441) (411)

Net gain/(loss) on divestments of businesses (2) 14 – 4

Restructuring provisions and other (170) (246) (119) 423

Add back:

Business operating profit attributable to non-controlling interests

(3) 24 15 26

Net income before shareholders’ taxes 2,614 2,156 931 1,531

Income tax expense attributable to policyholders – – 387 (1,184)

Net income before income taxes 2,614 2,156 1,318 347

Income tax expense (attributable to policyholders and shareholders)

Net income after taxes

in USD millions, for the years ended December 31 Farmers

Other Operating Businesses Non-Core Businesses Total

2009 2008 2009 2008 2009 2008 2009 2008

Business operating profit 1,554 1,356 (611) (772) (290) (423) 5,593 5,186

Revenues/(expenses) not included in BOP:

Net capital gains/(losses) on investments and impairments, net of policyholder allocation (50) (56) (62) (59) 8 (41) (1,219) (1,739)

Net gain/(loss) on divestments of businesses – – – – (3) (1) (5) 16

Restructuring provisions and other (34) 2 81 99 6 58 (236) 336

Add back:

Business operating profit attributable to non-controlling interests – – – (2) 1 – 12 48

Net income before shareholders’ taxes 1,470 1,302 (592) (734) (279) (408) 4,145 3,847

Income tax expense attributable to policyholders – – – – – – 387 (1,184)

Net income before income taxes 1,470 1,302 (592) (734) (279) (408) 4,531 2,663

Income tax expense (attributable to policyholders and shareholders) (1,295) 452

Net income after taxes 3,236 3,116

Source: Zurich Financial Services Ltd, Annual Report 2009, pp. 248-249.

The above approach provides additional information to financial statements users; however, generally it was not seen in the financial statements surveyed.

The following extract illustrates disclosure of reconciliation of total reportable segment’s assets and liabilities.



Disclosure 34: Bayer AG

Reconciliation of Segment Assets to Group Assets [Table 4.12]

2008 2009

€ million € million

Assets of reporting segments 46,208 44,703

Corporate Center assets 1,270 1,222

Non-allocated assets 5,025 5,117

Assets held for sale and discontinued operations 8 -

Total assets 52,511 51,042

Reconciliation of Segment Liabilities to Group Liabilities [Table 4.13]

2008 2009

€ million € million

Liabilities of reporting segments 11,855 12,295

Corporate Center liabilities 3,584 3,204

Non-allocated liabilities 20,719 16,592

Liabilities directly related to assets held for sale and discontinued operations 13 -

Total liabilities 36,171 32,091

Source: Bayer AG, Annual Report 2009, p. 168.

IFRS 8.28 IFRS 8 requires that all material reconciling items be identified and described separately, e.g. the amount of each material adjustment to reconcile accounting policies used in determining segment profit or loss to the entity’s amounts is identified and described separately.

3.5.7 Discontinued operations IFRS 8 is not clear on whether discontinued operations meet the definition of an operating segment

in paragraph 5 or not. In the example set out below discontinued operations were presented separately.



49

Disclosure 35: Nestlé S.A.

In millions of CHF Tota

l con

tinui

ng

oper

atio

ns

Pha

rma

disc

ontin

ued

oper

atio

ns (c

)

Tota

l

2009

Revenues and results

Sales (e) 100 579 7 039 107 618

EBIT Earnings Before Interest, Taxes, restructuring and impairments 13 222 2 477 15 699

Impairment of assets (207) (20) (227)

Restructuring costs (200) (22) (222)

Net other income/(expenses) excluding restructuring and impairments (323) 43 (280)

Net financing cost (654) 39 (615)

Profit before taxes and associates 11 838 2 517 14 355

Assets

Segment assets 77 989 6 784 84 773

Non-segment assets 26 143

Total assets 110 916

of which goodwill and intangible assets 34 160 3 256 37 416

Other information

Capital additions 5 273 614 5 887

of which capital expenditure 4 293 348 4 641

Depreciation and amortisation of segment assets 3 133 236 3 369

* the table was modified to show only the total of reportable segments relating to continuing operations and the discontinued operations; therefore, it does not show all reportable segments of the company.

Source: Nestlé S.A., Consolidated Financial Statements, 2009, pp. 62-63.

3.5.8 Entity-wide disclosures IFRS 8.31-34 Entity-wide disclosures related to the following items are required, regardless of whether the

information is used by the CODM in assessing segment performance:

¬¬ products and services¬¬ geographical areas: revenues from external customers and non-current assets other than

financial instruments, deferred tax assets, post-employment benefit assets and rights arising from insurance contracts

¬¬ information about major customers.

IFRS 8.33 Information by geographical area is presented for the entity’s country of domicile and for each foreign country, if material. In our view, disclosing such information by region, e.g. Europe or Asia, does not meet the above requirement when the individual country is material. These disclosures apply to all entities subject to IFRS 8, including entities that have only one reportable segment. However, information required by the entity-wide disclosures need not be repeated if it is included already in the segment disclosures.

IFRS 8 does not provide materiality thresholds for determining the entity-wide disclosures, other than for major customer information. As a result, when otherwise not specified by the standard, judgement needs to be used to determine material items for entity-wide disclosure purposes. In our view, quantitative thresholds and qualitative reasons are to be considered when determining material items for entity-wide disclosures.



In terms of the analysis of foreign countries, our survey indicated a broadly even split between those presenting an analysis based on individual countries or regions.

The following extract illustrates entity-wide disclosures by country.

Disclosure 36: Danske Bank A/S

Income

External customers Assets

2009 2008 2009 2008

Denmark 36,678 17,817 16,563 15,967

Finland 5,541 3,223 15,111 16,338

Sweden 5,246 5,524 195 176

Norway 3,932 4,301 701 585

Ireland 2,099 2,192 290 556

Baltics 936 1,656 2,158 3,629

UK 4,563 5,062 2,448 2,276

Germany 306 610 1 1

Luxembourg 373 328 29 35

Poland 128 165 - -

US 47 722 374 -

Other 478 2,464 1 1

Total 60,327 44,064 37,871 39,564

Source: Danske Bank A/S, Annual Report 2009, p. 77.

IFRS 8.33 An entity may allocate revenue from external customers to geographical areas as it deems most appropriate (e.g. by selling location, customer location or the location to which the product is transported, which might differ from the location of the customer). Regardless, the selected method is applied consistently and disclosed in the financial statements. Our survey showed that the most common approach taken by companies was to state revenues based on the basis of origin (i.e. country in which the segment is domiciled). In general, this approach was also used by companies that reported measures to the CODM on a geographical basis (see 3.4.3).



51

Disclosure 37: Unilever N.V.

The analysis of turnover by geographical area is stated on the basis of origin. Turnover on a destination basis would not be materially different. Inter-segment sales are carried out at arm’s length.

Source: Unilever N.V., Annual Reports and Accounts 2009, p. 87.

The following extract illustrates entity-wide disclosures by region. together with the country of domicile.

Disclosure 38: BASF AG

2009 (million €)

EuropeThereof

GermanyNorth

AmericaAsia,

Pacific

SouthAmerica,

Africa,Middle

EastBASF

Group

Location of customers

Sales 28,532 10,666 9,423 8,706 4,032 50,693

Change (%) (22.2) (22.7) (21.0) (6.6) (7.5) (18.6)

Share (%) 56.2 21.0 18.6 17.2 8.0 100.0

Location of companies

Sales 30,375 21,543 9,320 7,997 3,001 50,693

Sales including interregional transfers 34,393 24,729 10,564 8,263 3,164 56,384

Income from operations 2,390 1,855 495 503 289 3,677

Assets 31,994 18,790 10,139 6,392 2,743 51,268

Thereof property, plant and equipment 9,789 6,006 3,351 2,526 619 16,285

Additions to property, plant and equipment and intangible assets

4,194 2,101 1,123 521 134 5,972

Amortization of intangible assets and depreciation of property, plant and equipment

2,429 1,242 750 428 104 3,711

Employees as of December 31 67,621 48,586 15,945 14,817 6,396 104,779

Source: BASF AG, Annual Report 2009, p. 161.

IFRS 8.32 IFRS 8 requires entities to disclose information from revenues from external customers for each product and service, or each group of similar products and services. For most of the companies surveyed, this information was provided by group of similar products and services. The extract below provides an example in which disclosure was given in respect of each product and service.



Disclosure 39: PKN Orlen S.A.

The Group’s revenues from sale of core products and services were as follows:

for the yearended

31/12/2009

for the yearended

31/12/2008

Refining Segment 36 569 602 46 033 371

Gasoline 10 247 438 11 333 387

Diesel fuel 16 117 872 21 277 285

Light heating oil 1 540 447 2 218 224

Jet A-1 fuel 1 458 344 2 930 351

Heavy heating oil 2 471 591 2 823 227

LPG 499 199 739 670

Bitumens 1 471 036 1 368 542

Engine oils 282 535 265 798

Other 2 481 140 3 076 887

Retail Segment 22 383 703 22 479 537

Gasoline 9 594 110 9 188 989

Diesel fuel 8 674 140 9 337 361

Light heating oil 625 336 738 816

LPG 855 355 970 205

Other 2 634 762 2 244 166

Petrochemical Segment 8 877 040 10 934 614

Polyethylene 1 561 136 1 784 065

Polypropylene 1 224 365 1 365 545

Ethylene 710 283 900 036

Propylene 520 483 653 648

Toluene 135 867 205 532

Benzene 516 891 657 121

Butadiene 128 260 171 945

Glycol 149 250 236 520

PVC 913 666 874 061

PVC Granulate 234 989 196 496

Canwil 232 028 355 603

Ammounium nitrate 479 922 438 663

Other 2 069 900 3 095 379

Corporate Functions 97 645 85 703

Total consolidated revenues 67 927 990 79 533 225

Source: PKN Orlen S.A., Consolidated Financial Statements 2009, p. 42.

IFRS 8.34 In relation to the disclosure requirement regarding customers that represent more than 10 percent of the entity’s revenues, some companies confirmed explicitly that there was no customer representing more than 10 percent of the entity’s revenues; for other companies no disclosure was given, which implies that there were no such customers.



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4. Other matters

4.1 Impact on the impairment analysisIAS 36.80 When IFRS 8 was introduced, a consequential change was made to IAS 36 Impairment of Assets.

Following this amendment, the level at which goodwill arising from business combinations is allocated and then subject to impairment testing is no larger than an operating segment determined in accordance with IFRS 8.

In carrying out the survey we considered whether companies’ disclosures made any mention that the adoption of IFRS 8 had impacted their impairment analysis. We found only two instances of companies making any reference to the fact that adoption of IFRS 8 had changed the level at which impairment testing had occurred. This may be because others previously had allocated goodwill in a similar way or may reflect the low level of aggregation that we found in our survey. None of the companies that disclosed the change identified any goodwill impairment in the year.

The following extract illustrates disclosure of the impact of IFRS 8 on the identification of cash generating units.

Disclosure 40: GlaxoSmithKline plc

Goodwill is allocated to cash generating units which are tested for impairment at least annually. Following the implementation of IFRS 8 ‘Operating segments’ in 2009 the cash generating units to which some of the goodwill balances are allocated have changed. The goodwill arising on the acquisitions of ID Biomedical, Sirtris Pharmaceuticals and Domantis has been split between the five pharmaceutical segments (USA, Europe, Emerging Markets, Asia Pacific/Japan and Other) for impairment testing purposes as either the benefit of the acquired businesses is split among the five pharmaceutical segments or they do not generate independent cash flows.

Source: GlaxoSmithKline plc, Annual Report 2009, p. 121.



Appendix A: Overview of the requirements of IFRS 8

¬¬ Segmentdisclosuresarerequiredbyentitieswhosedebtorequityinstrumentsaretradedinapublicmarketorthatfile,orareintheprocessoffiling,theirfinancialstatementswithasecuritiescommissionorotherregulatoryorganisationforthepurposeofissuinganyclassofinstrumentsinapublicmarket.

¬¬ Thestandardisbasedona“managementapproach”,whichrequiressegmentdisclosuresbasedonthecomponentsoftheentitythatmanagementmonitorsinmakingdecisionsaboutoperatingmatters.

¬¬ Suchcomponents(operatingsegments)areidentifiedonthebasisofinternalreportsthattheentity’schiefoperatingdecisionmaker(CODM)reviewsregularlyinallocatingresourcestosegmentsandinassessingtheirperformance.

¬¬ Theaggregationofoperatingsegmentsispermittedonlywhenthesegmentshave“similar”economiccharacteristicsandmeetanumberofotherspecifiedcriteria.

¬¬ Reportablesegmentsareidentifiedbasedonquantitativethresholdsofrevenue,profitorloss,orassets.

¬¬ TheamountsdisclosedforeachreportablesegmentarethemeasuresreportedtotheCODM,whicharenotnecessarilybasedonthesameaccountingpoliciesastheamountsrecognisedinthefinancialstatements.

¬¬ Becausedisclosureofsegmentprofitorloss,segmentassetsandsegmentliabilitiesasreportedtotheCODMisrequiredratherthanastheywouldbereportedunderIFRSs,disclosureofhowtheseamountsaremeasuredforeachreportablesegmentalsoisrequired.

¬¬ Reconciliationsbetweentotalamountsforallreportablesegmentsandfinancialstatementsamountsaredisclosedwithadescriptionofallmaterialreconcilingitems.

¬¬ Generalandentity-widedisclosuresarerequired,includinginformationaboutproductsandservices,geographicalareas(includingcountryofdomicileandindividualforeigncountries,ifmaterial),majorcustomersandfactorsusedtoidentifyanentity’sreportablesegments.Suchdisclosuresarerequiredevenifanentityonlyhasonesegment.

¬¬ Comparativeinformationnormallyisrestatedforchangesinoperatingsegments.

KPMG International Standards Group is part of KPMG IFRG Limited.

KPMG International Cooperative (“KPMG International”) is a Swiss entity that serves as a coordinating entity for a network of independent firms operating under the KPMG name. KPMG International provides no audit or other client services. Such services are provided solely by member firms of KPMG International (including sublicensees and subsidiaries) in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any other member firm, nor does KPMG International have any such authority to obligate or bind KPMG International or any other member firm, nor does KPMG International have any such authority to obligate or bind any member firm, in any manner whatsoever.

The information contained herein is of a general nature and is not intended to address the circumstances of anyparticular individual or entity. Although we endeavour to provide accurate and timely information, there can be noguarantee that such information is accurate as of the date it is received or that it will continue to be accurate inthe future. No one should act upon such information without appropriate professional advice after a thoroughexamination of the particular situation.

© 2010 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved. Printed in the UK.

KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity.

Cover design: Mytton Williams

Publication name: The Application of IFRS: Segment reporting

Publication no: 314448

Publication date: September 2010

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