Strategic Business Reporting (International) · Presentation and disclosure in financial statements

IFRS 8 Operating Segments: Reportable Segments and the 10% Tests

Updated 11 October 2026 · Fact-checked

IFRS 8 requires certain entities to report financial information about their operating segments, using the same breakdown management uses internally (the management approach). A segment is reportable if it meets a 10% test for revenue, profit or loss, or assets. Reportable segments must also cover at least 75% of external revenue.

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 management's eyes. This helps them judge the different risks and returns across the entity.

The core idea is the management approach. You do not decide the segments yourself. You follow how the chief operating decision maker (CODM) reviews results and allocates resources. The CODM is a function, often the CEO or an executive committee, not necessarily one person. If management reports by product line, you report by product line. If it reports by region, you report by region.

An operating segment is a component of the entity that earns revenue and incurs expenses, whose results are regularly reviewed by the CODM, and for which discrete financial information is available. Start-up operations can qualify. Corporate head office usually does not, because it does not earn revenue from its own activities.

Not every operating segment must be reported separately. A segment is reportable if it passes a quantitative threshold. Similar segments may be aggregated if they have similar economic characteristics and are similar in products, production processes, customers, distribution methods and regulatory environment. Small segments that fail the tests may be combined if they share most of those characteristics.

Once you have the reportable segments, the standard always requires disclosure of a measure of profit or loss. Total assets, total liabilities and other items are disclosed only if they are included in the measure the CODM reviews or are regularly provided to it. It also requires reconciliations to the entity's totals, and entity-wide disclosures on products, geography and major customers. In SBR, expect to apply the tests to a scenario and then comment on the quality of the segment information.

Key rules to remember

Revenue test: Segment revenue (external + inter-segment) ≥ 10% × combined revenue of all operating segments; Uses total segment revenue including inter-segment sales. Combined revenue is the total of all operating segments, before eliminations.
Profit or loss test: |Segment profit or loss| ≥ 10% × the greater of (combined profit of all segments in profit) and (combined loss of all segments in loss), in absolute terms; Compare the absolute amount of the segment result with the larger of the two absolute totals. Loss-making segments are included in the test.
Asset test: Segment assets ≥ 10% × combined assets of all operating segments; Apply the asset test using the segment asset measure where one is reported to the CODM. Disclosure of assets is required only if they are included in the measure the CODM reviews or are regularly provided to it. Meeting any one of the applicable tests is enough to make the segment reportable.
75% coverage test: External revenue of reportable segments ≥ 75% of entity revenue; If not met, add further operating segments, even below 10%, until 75% is reached.
Practical limit: Reportable segments are generally expected to be around ten; If it exceeds ten, consider whether a practical limit has been reached. This is guidance, not a hard cap.
Previous-period and new segments: A segment that was reportable last year but now fails the thresholds may still be reported if management judges it of continuing significance; Restate prior-period data when a segment becomes newly reportable, or when a change in the entity's structure changes its reportable segments. The exception is where the information is unavailable and the cost to develop it would be excessive.
Key disclosures: Factors used to identify segments; types of products and services; a measure of profit or loss (always); total assets and liabilities if reported to the CODM; reconciliations to entity totals; Also disclose measurement basis, revenue from external customers, interest, depreciation and similar items if included in the measure reviewed by the CODM or regularly provided to it.
Major customer disclosure: Disclose if revenue from a single external customer ≥ 10% of entity revenue; Disclose the amount and the segment reporting it. You need not name the customer.

How to solve IFRS 8 Operating Segments questions

Use this order for any IFRS 8 question. It stops you jumping to the tests before you know what the segments are.

1Check scope: is the entity listed or filing to list? If not, IFRS 8 is not mandatory.
2Identify the CODM and the information it reviews. Define operating segments from that internal reporting, not from legal entities or statutory groupings.
3Exclude components that do not earn revenue, such as head office, and check discrete financial information exists.
4Consider aggregation. Only combine segments with similar economic characteristics and similar nature of products, processes, customers, distribution and regulation.
5Apply the three 10% tests to each segment. Use total segment revenue, the absolute profit or loss, and segment assets. One pass is enough.
6Add up external revenue of reportable segments and test for 75% coverage. Add more segments if needed.
7List required disclosures: segment profit or loss, assets and liabilities if reviewed by the CODM, reconciliations, and entity-wide disclosures including major customers.
8Apply to the scenario. Comment on any weakness, such as a measure that differs from IFRS or management reporting that hides a risky segment.

Quickest way: Three-column 10% grid

When to use it: Use when the question gives a table of segment revenue, results and assets and asks which segments are reportable.

Total each column: revenue, profit or loss, and assets. For profit, total the profits and the losses separately.
Take 10% of each total. For the result column, use the larger absolute total.
Tick each segment that meets the line in any column. Use absolute values for results.
Add external revenue of the ticked segments and compare with 75% of entity revenue.
Write one sentence per segment to say why it is reportable or not, so you earn the method marks even if arithmetic slips.

Common mistakes in IFRS 8 Operating Segments

Defining segments by legal entity or geography without checking what the CODM reviews.
Students assume segments follow the statutory structure or natural categories like country.
Fix: Anchor on internal management reporting. State who the CODM is and what they review before applying any tests.
Using only external revenue in the revenue test.
Students link the test to the income statement figure.
Fix: Use total segment revenue including inter-segment sales for the 10% test. Use external revenue only for the 75% coverage test.
Ignoring loss-making segments in the profit test, or comparing with the wrong total.
Students compare against total net profit, which nets profits and losses.
Fix: Compare the absolute segment result with the greater of the total of profitable segments and the absolute total of loss-making segments.
Stopping once a segment is below 10% and forgetting the 75% test.
The 10% tests feel like the whole answer.
Fix: Always run the 75% coverage check. Add segments until external revenue of reportable segments reaches the threshold.
Aggregating segments only because they are small or in the same country.
Students treat aggregation as a way to tidy up.
Fix: Aggregate only if segments have similar economic characteristics and are similar across the listed criteria. Size alone is not enough.
Adjusting segment profit to IFRS numbers.
Students expect IFRS standards to dictate every measurement.
Fix: Disclose the measure used by the CODM, even if it is not IFRS-compliant, and then reconcile to the entity total. Explain the basis of measurement.

Worked examples

Example 1

Delta Co is listed. Its CODM reviews five operating segments and regularly receives segment assets. Total segment revenue (including inter-segment) is $200m: A $90m, B $50m, C $30m, D $18m, E $12m. Segment profit or (loss): A $20m, B $9m, C ($4m), D $1m, E $0.5m. Segment assets: A $120m, B $70m, C $40m, D $20m, E $10m. External revenue is A $85m, B $48m, C $28m, D $17m, E $11m, so Delta's entity revenue is $189m. The difference of $11m ($200m less $189m) is inter-segment revenue, which is eliminated on consolidation. Which segments are reportable?

Show the solution

Revenue test: 10% × $200m = $20m. A, B and C pass. D ($18m) and E ($12m) fail.
Profit test: profits total $20m + $9m + $1m + $0.5m = $30.5m. Losses total $4m. The greater is $30.5m, so the threshold is $3.05m.
A ($20m) and B ($9m) pass. C has an absolute loss of $4m, which is above $3.05m, so it passes. D ($1m) and E ($0.5m) fail.
Asset test: segment assets are measured and reported to the CODM here, so the test can be applied. Total assets = $120m + $70m + $40m + $20m + $10m = $260m, so the threshold is $26m. A, B and C pass. D ($20m) and E ($10m) fail.
So A, B and C are reportable. D and E fail all three tests.
Inter-segment revenue: $200m total segment revenue less $189m entity revenue = $11m (A $5m, B $2m, C $2m, D $1m, E $1m). It counts in the 10% revenue test but not in the 75% test.
75% test: external revenue of A, B and C = $85m + $48m + $28m = $161m. 75% × $189m = $141.75m. $161m exceeds this, so coverage is met.
D and E may be combined into an 'all other segments' category, with the sources of revenue described.

Answer: A, B and C are reportable. D and E are below every 10% threshold and are shown as 'all other segments' because the 75% test ($161m against $141.75m) is already met. The $11m gap between segment revenue ($200m) and entity revenue ($189m) is inter-segment revenue.

Example 2

Explain to the finance director of a listed group why IFRS 8 segment profit may differ from the profit in the group's consolidated financial statements, and what must be disclosed to address this. The CODM reviews segment profit before head office costs and before a pension charge.

Show the solution

State the principle: IFRS 8 uses the management approach. Segment measures are those reported to the CODM, even if they do not follow IFRS measurement.
Apply to the scenario: the CODM sees profit before head office costs and the pension charge. The segment figures therefore exclude items that are in group profit.
Explain the benefit: users see performance as management does, which helps assess the risks and returns of each segment.
Identify the risk: the measure may flatter segments or be hard to compare with other entities. Users need transparency.
List the disclosures: the basis of measurement for segment profit and any segment assets and liabilities reported; the nature of differences from IFRS amounts; and reconciliations of total segment revenue and total segment profit or loss to the group totals. Total segment assets and liabilities are reconciled too, where they are reported to the CODM.
Note that unallocated items, such as head office costs and the pension charge, appear as reconciling items.
Professional skills: advise that the director should check the measure is consistently applied and clearly explained to avoid misleading users.

Answer: Segment profit may differ because IFRS 8 uses the measure the CODM reviews, here before head office costs and the pension charge. The group must disclose the measurement basis and reconcile segment totals to the consolidated figures, showing unallocated items separately. Assets and liabilities are reconciled where they are reported to the CODM.

Exam tips

Read the scenario for who reviews the information. The CODM point is often the key to identifying segments.
Show the 10% tests in a small table. Marks are given for the method, so show each threshold figure.
Do not stop at the calculation. SBR questions often ask for comment on whether the disclosures are useful or whether segments were aggregated appropriately.
Link IFRS 8 to ethics and performance. Aggregating segments to hide a loss-making one is a reporting issue worth raising.
Learn the disclosure list as headings: general information, profit or loss and assets, reconciliations, then entity-wide disclosures including major customers.

Practice questions from Presentation and disclosure in financial statements

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

Who must apply IFRS 8?

IFRS 8 applies to entities whose debt or equity instruments trade in a public market, and to entities filing to issue such instruments. Other entities may choose to disclose segment information. If they do, they must not describe it as segment information unless it complies with IFRS 8.

What is the 10% test in IFRS 8?

A segment is reportable if it meets any one of three tests. Its total revenue, the absolute amount of its profit or loss, or its assets must be at least 10% of the relevant combined total for all operating segments. For profit, the comparison total is the greater of the combined profits and the combined losses in absolute terms.

What if reportable segments do not cover 75% of revenue?

You add more operating segments until external revenue of reportable segments is at least 75% of entity revenue. This applies even if the added segments are below the 10% thresholds.

Does head office count as an operating segment?

Not usually. A corporate head office that does not earn revenue, or earns only incidental revenue, is not an operating segment. Its costs appear as reconciling items between segment totals and the entity totals.