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ACCA Strategic Professional · Strategic Business Reporting (International) · Other reporting issues

Kestrel plc has five business components. Its chief operating decision maker (CODM) reviews the results of each component monthly and allocates resources on that basis. Under IFRS 8 Operating Segments, which feature most directly identifies a component as an operating segment?

A component is an operating segment when its discrete financial information is available and its results are regularly reviewed by the chief operating decision maker to assess performance and allocate resources. Legal structure, location or size do not define it; size only matters for reportability.

  1. AIt has its own legal entity status and a separate board of directors
  2. BIts discrete financial information is available and is regularly reviewed by the CODM to assess performance and allocate resourcesCorrect
  3. CIt is located in a different country from the head office
  4. DIt generates more than 10% of group profit before tax

Explanation

IFRS 8 uses the management approach. An operating segment engages in business activities earning revenues and incurring expenses, has results regularly reviewed by the CODM for resource allocation and performance assessment, and has discrete financial information available. Legal form and geography are not the test, and the 10% thresholds apply only to deciding whether a segment is reportable.

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