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

Nairn plc has a chief operating decision maker (CODM) who reviews monthly results for four product lines and also receives a separate geographic summary. Under IFRS 8 Operating Segments, how should Nairn identify its reportable operating segments?

Operating segments are identified using the management approach: components of the entity whose discrete financial information is regularly reviewed by the chief operating decision maker to allocate resources and assess performance, not by legal entity, geography or audit structure.

  1. AUse the components whose discrete financial information is regularly reviewed by the CODM to allocate resources and assess performanceCorrect
  2. BUse the geographic areas in which the entity sells, because geography is always the primary basis
  3. CUse the legal entities within the group, because each has its own financial statements
  4. DUse the components defined by the entity's external auditor in the audit plan

Explanation

IFRS 8 adopts the management approach: operating segments are components with discrete financial information that the CODM regularly reviews for resource allocation and performance assessment. Geography is not automatically primary, and legal entity structure or audit plans do not determine segments.

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