Strategic Business Reporting (International) · Other reporting issues

IFRS 8 Operating Segments: Management Approach and Reportable Segments

Updated 11 October 2026 · Fact-checked

IFRS 8 requires certain entities to report information about their operating segments using the management approach: segments are identified the way the chief operating decision maker reviews the business. An operating segment is reportable if it meets a 10% threshold for revenue, profit or loss, or assets, or if aggregation or the 75% test requires it.

Understand IFRS 8 Operating Segments

IFRS 8 applies to entities whose debt or equity instruments are traded in a public market, or that are filing to issue them. Its aim is to let users see the business through the eyes of management. This helps them assess the different risks and returns across the entity.

The key idea is the management approach. You do not group the business by your own logic. You follow the internal reports that the chief operating decision maker (CODM) uses to allocate resources and assess performance. The CODM is a function, not always one person. It could be the board or the CEO.

An operating segment is a component of the entity that earns revenues and incurs expenses, has results regularly reviewed by the CODM, and has discrete financial information available. A start-up segment can qualify even before it earns revenue. Corporate head office usually does not qualify, as it does not earn revenue from the entity's activities.

Not every operating segment must be reported separately. A reportable segment is an operating segment that passes the quantitative thresholds (or that you choose to report, or that is aggregated with a similar segment). Think of operating segment as the starting list and reportable segment as the list that survives the tests.

The entity then discloses profit or loss, assets and liabilities (if reported to the CODM), and the specific items included in the measure the CODM uses. It also reconciles totals to the financial statements. The measure follows what the CODM sees, even if it is not IFRS-compliant. This is why a reconciliation is essential.

Key rules to remember

Revenue test: Segment revenue (external + inter-segment) ≥ 10% × total revenue of all operating segments (external + inter-segment); Meeting any one of the three 10% tests makes the segment reportable.
Profit or loss test: |Segment profit or loss| ≥ 10% × the greater of (combined profit of all segments in profit) and (absolute combined loss of all segments in loss); Use the larger of the two totals as the base. Ignore the sign of the segment's result when testing.
Assets test: Segment assets ≥ 10% × combined assets of all operating segments; Base is segment assets, not total entity assets, as reported to the CODM.
75% external revenue test: Total external revenue of reportable segments ≥ 75% × entity revenue; If below 75%, add further operating segments, even if below 10%, until 75% is reached.
Practical limit: Segments are generally limited to about ten reportable segments; IFRS 8 says that if the number exceeds ten, the entity should consider whether a practical limit has been reached. It is not a hard cap.
Aggregation criteria: Aggregate only if consistent with the core principle and the segments have similar economic characteristics, products, processes, customers, distribution methods and regulatory environment; Aggregation is optional, not compulsory.
Entity-wide disclosures: Products and services, geographical areas, major customers (≥ 10% of entity revenue); Required even for entities with a single segment.

How to solve IFRS 8 Operating Segments questions

Use this order for any IFRS 8 question. It stops you missing marks on identification or on the base for the tests.

1Read the scenario for how the CODM reviews performance. Identify the operating segments from internal reports, not from legal entities or geography unless management uses them.
2Exclude components that do not earn revenue from the entity's activities, such as head office, unless they meet the definition.
3Calculate each segment's revenue including inter-segment sales, profit or loss, and assets.
4Work out the base for each test: total revenue, the larger of combined profits and combined losses, and total segment assets.
5Apply the 10% tests to each segment. A segment is reportable if it passes any one test. State the figures and conclusion.
6Apply the 75% test using external revenue of reportable segments against entity revenue. Add segments if it fails.
7Consider aggregation and the optional reporting of small segments. Remaining segments go into an 'all other segments' category.
8State the disclosures required: general information, segment profit or loss, assets and liabilities as reported, reconciliations, and entity-wide disclosures.

Quickest way: Table-and-threshold sweep

When to use it: Use this when the question gives a table of segment figures and asks which segments are reportable.

Draw a quick column for revenue, profit or loss, and assets for each segment.
Total each column. For profit, total the profits and the losses separately and pick the bigger absolute number.
Multiply each base by 10% and write the threshold under the column.
Tick each segment against each column. One tick is enough.
Add the external revenue of the ticked segments and compare with 75% of entity revenue.
Write one sentence per segment: reportable, because it meets the X test.

Common mistakes in IFRS 8 Operating Segments

Using the total entity revenue or assets as the base for the 10% tests.
Students assume the base is what is in the financial statements.
Fix: Use the combined figures of all operating segments, with inter-segment revenue included in the revenue test.
Adding profits and losses together to get one base for the profit test.
It feels natural to take a net figure.
Fix: Take profits and losses separately. Use whichever total is larger in absolute terms.
Requiring a segment to pass all three tests.
Students confuse the tests with a combined condition.
Fix: Any one of the three 10% tests is enough.
Defining segments by legal entity or product line without reference to the CODM.
Older segment reporting thinking is based on industry and geography.
Fix: Anchor the answer on internal reports reviewed by the CODM, then link to the scenario.
Forgetting the 75% test and the reconciliations.
Students stop once the 10% tests are done.
Fix: Always finish with the 75% check and mention reconciliation of segment totals to IFRS figures.
Saying segment figures must follow IFRS measurement.
Students assume all reported figures are IFRS-compliant.
Fix: Segment measures follow what the CODM uses, then are reconciled and explained.

Worked examples

Example 1

Entity X reports to its CODM four operating segments. Revenue including inter-segment sales (₹ crore): A 480, B 300, C 150, D 70. Segment profit/(loss) (₹ crore): A 90, B 40, C (30), D 6. Segment assets (₹ crore): A 600, B 350, C 200, D 50. Which segments are reportable under the 10% tests?

Show the solution

Total revenue = 480 + 300 + 150 + 70 = 1,000. Threshold = 100.
Revenue test: A 480 passes, B 300 passes, C 150 passes, D 70 fails.
Profits total = 90 + 40 + 6 = 136. Losses total = 30. The larger is 136. Threshold = 13.6.
Profit test: A 90 passes, B 40 passes, C |30| passes, D 6 fails.
Total assets = 600 + 350 + 200 + 50 = 1,200. Threshold = 120.
Assets test: A passes, B passes, C 200 passes, D 50 fails.
D fails all three tests.

Answer: Segments A, B and C are reportable. Segment D is not reportable on the quantitative tests. It may still be reported voluntarily or aggregated, subject to the 75% test.

Example 2

Continuing example 1: the entity's total external revenue is ₹820 crore. External revenue of A, B and C is ₹300 crore, ₹250 crore and ₹120 crore. Discuss whether the 75% test is met and what disclosures follow.

Show the solution

External revenue of reportable segments = 300 + 250 + 120 = 670.
75% of entity revenue = 0.75 × 820 = 615.
670 ≥ 615, so the test is met and no further segments need to be added.
D is combined in 'all other segments' with other unreportable items, and its revenue sources are described.
Disclose general information, including how segments were identified and the products and services of each.
Disclose each segment's profit or loss, and assets and liabilities if reported to the CODM, and specified items included in the measure used.
Provide reconciliations of segment totals to entity revenue, profit or loss, assets and liabilities.
Provide entity-wide disclosures: products and services, geographical areas, and any customer contributing 10% or more of revenue.

Answer: The 75% test is met (₹670 crore against a requirement of ₹615 crore). A, B and C are reported separately, D is in 'all other segments', and the full set of segment, reconciliation and entity-wide disclosures is required.

Exam tips

Start every answer with how the CODM reviews the business. Examiners reward this application to the scenario.
Show the base and the 10% figure in your working so you earn marks even if one number is wrong.
Use IFRS 8 to question the reporting: ask whether management has hidden a poorly performing segment through aggregation.
Link to ethics where relevant. Aggregating dissimilar segments to mask weak results raises transparency concerns.
Write professional skills points: advise the board, challenge the aggregation judgement and communicate clearly.

Practice questions from Other reporting issues

IFRS 8 Operating Segments in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

IFRS 8 Operating Segments: frequently asked questions

What is the difference between an operating segment and a reportable segment?

An operating segment is a component identified using the CODM's internal reports. A reportable segment is an operating segment that passes a 10% test, is aggregated, or is otherwise separately disclosed. All reportable segments are operating segments, but not the reverse.

Who is the chief operating decision maker?

It is the function that allocates resources and assesses the performance of segments. It may be the CEO, a board, or a management committee. It is defined by role, not job title.

Does IFRS 8 apply to all entities?

It applies to entities whose debt or equity is publicly traded, or that are in the process of issuing instruments in a public market. Other entities may choose to apply it, but then must follow the standard fully.

Must segment profit follow IFRS measurement?

No. The segment measure is the one the CODM uses, even if it differs from IFRS. The entity must explain the basis and reconcile totals to the financial statements.