Key Points
- Only entities with publicly traded securities (or those in the process of filing) fall within the scope of IFRS 8 .
- The chief operating decision maker's internal reports define the segments, not the entity's legal or geographic structure.
- A segment is reportable when it exceeds any one of the 10% quantitative thresholds for revenue, profit or loss, assets, or a combination of these.
- Reportable segments must collectively represent at least 75% of the entity's external revenue.
What is segment reporting ( IFRS 8 )?
On at least half the listed-entity audits we've worked, the segment note was treated as a tick box exercise. Management would draft it to match the prior year, and the team would roll the numbers forward without actually comparing the reported segments to what the CODM was reading internally. That gap is where regulators keep finding deficiencies. The FRC's 2022/23 annual review flagged segment disclosures repeatedly, and ESMA's enforcement reports tell the same story across the continent.
IFRS 8.5 defines an operating segment through four characteristics: it engages in business activities from which it may earn revenues and incur expenses, its operating results are regularly reviewed by the entity's chief operating decision maker (CODM), discrete financial information is available for it, and the segment is distinguishable from other components for internal resource allocation. The standard adopts a management approach. The segments an entity reports externally must match the segments the CODM uses internally to allocate resources and assess performance ( IFRS 8.5 (b)). The auditor doesn't choose the segments. Management does, and the auditor tests whether the reported segments genuinely reflect the CODM's internal reporting.
IFRS 8.13 sets quantitative thresholds for reportable status. A segment qualifies when its reported revenue (including intersegment sales) or its reported profit or loss in absolute terms equals or exceeds 10% of the combined corresponding total. It also qualifies if its assets reach that 10% mark. After applying these thresholds, IFRS 8.15 requires the entity to verify that reportable segments together account for at least 75% of external revenue. If they don't, the entity must identify additional segments until the 75% floor is met.
Worked example: Schafer Elektrotechnik AG
Schafer is a German electronics company, FY2025, with consolidated revenue of EUR 310M and reporting under IFRS. The CODM (the management board) receives monthly reports for four divisions: Industrial Automation (IA), Consumer Electronics (CE), Lighting Solutions (LS), and Corporate Services (CS).
Step 1 — Identify operating segments
Each division earns revenue and incurs expenses, the management board reviews results at the division level monthly, and Schafer's management reporting system produces a discrete income statement and asset schedule for each. All four divisions meet the IFRS 8.5 definition.
Step 2 — Apply the 10% quantitative thresholds
Schafer's combined figures are: total segment revenue (including intersegment) EUR 326M, combined absolute segment profit/loss EUR 39M, and total segment assets EUR 280M. The thresholds work out to EUR 32.6M for revenue, EUR 3.9M for profit/loss, EUR 28M for assets.
| Division | Revenue | Profit/(loss) | Assets | Reportable? |
|---|---|---|---|---|
| Industrial Automation | EUR 168M | EUR 22M | EUR 145M | Yes (all three) |
| Consumer Electronics | EUR 104M | EUR 11M | EUR 88M | Yes (all three) |
| Lighting Solutions | EUR 41M | EUR 4.2M | EUR 35M | Yes (all three) |
| Corporate Services | EUR 13M | (EUR 1.8M) | EUR 12M | No (none met) |
Step 3 — Test the 75% external revenue floor
The three reportable segments generate external revenue of EUR 158M (IA) + EUR 98M (CE) + EUR 38M (LS) = EUR 294M. External revenue totals EUR 310M. The reportable segments represent 94.8% of external revenue, clearing the 75% floor comfortably.
Step 4 — Verify reconciliation
IFRS 8.28 requires a reconciliation of total segment revenue, profit or loss, and assets to the entity's corresponding consolidated totals. Corporate Services revenue of EUR 13M (entirely intersegment) and its EUR 1.8M loss sit in the "all other segments" category. Reconciling items include intersegment elimination of EUR 16M and corporate overhead reallocation of EUR 2.1M.
Schafer reports three operating segments with a fourth division aggregated into "all other segments." The approach is defensible because the segmentation mirrors the CODM's actual internal reporting, and the file documents both the quantitative thresholds and the 75% floor test.
Why it matters in practice
IFRS 8.22 (a) requires disclosure of the factors used to identify reportable segments, including whether segments have been aggregated. In our experience, auditors who accept a generic note stating "the board reviews segment performance" without specifying which board-level role acts as the CODM leave a gap that regulators flag. This is the finding that generates the most review notes on listed-entity files. A one-line fix to the note (naming the actual CODM function) prevents it, yet it comes up year after year.
Teams also tend to accept management's segment identification at face value without comparing the reported segments to the internal reporting package. When the CODM receives reports at a more granular level than the segments disclosed in the financial statements (FS), the entity may be aggregating segments under IFRS 8.12 without documenting the aggregation criteria. ISA 500.9 requires the auditor to evaluate whether audit evidence is consistent with information from other sources. The internal reporting pack is the primary cross-check for segment completeness, and requesting a copy of the actual CODM pack (not a sanitised version prepared for the auditors) is the single most effective procedure here.
Segment reporting ( IFRS 8 ) vs. operating segment
| Dimension | Segment reporting ( IFRS 8 ) | Operating segment |
|---|---|---|
| What it is | The disclosure framework requiring entities to report disaggregated financial information | A component of the entity that meets the IFRS 8.5 definition |
| Scope | Applies only to entities with publicly traded instruments | Exists as an internal management concept regardless of whether the entity reports under IFRS 8 |
| Who determines it | The standard prescribes the rules; the entity applies them | The CODM's internal reporting structure defines it |
| Reportability | Not all operating segments are reportable; quantitative thresholds in IFRS 8.13 apply | An operating segment may fall below all thresholds and be disclosed only in "all other segments" |
| Aggregation | IFRS 8.12 permits aggregation of operating segments with similar economic characteristics | Individual operating segments remain the starting point before any aggregation |
The distinction matters because auditors sometimes conflate the two. An entity may have six operating segments but report only three after applying the quantitative thresholds and aggregation criteria. Challenging the number of reportable segments requires understanding how many operating segments exist first.
Related terms
Frequently asked questions
Does IFRS 8 apply to private companies?
No. IFRS 8.2 limits the scope to entities whose equity or debt instruments are traded in a public market, or that are in the process of filing financial statements with a securities commission for the purpose of issuing instruments in a public market. A private company that voluntarily applies IFRS 8 must comply with all its requirements, but is not obligated to do so. If the entity applies the IFRS for SMEs, segment reporting is not required under that framework.
How do I audit the identification of the CODM?
Start with the entity's governance documents (articles of association, board charter, management regulations) to identify who allocates resources and assesses performance at the segment level. IFRS 8.7 states that the CODM is a function, not necessarily a title. The CODM might be the CEO, the management board collectively, an executive committee, or even a single division head in certain group structures. ISA 315.19 requires the auditor to understand the entity's organisational structure, and the CODM identification fits within that understanding.
What happens when the entity reorganises its divisions mid-year?
IFRS 8.34 requires restatement of prior-period segment information to reflect the new structure, unless the information is not available and the cost to develop it would be excessive. The entity must disclose that it has restated prior periods. The auditor tests whether the restated comparatives are consistent with the new CODM reporting structure and whether the disclosures explain the change.