- Its revenue is 10% or more of the total revenue of all segments, or
- Its segment result is 10% of more of the combined result of all segments in profit
or the combined result of all segments in loss, whichever is greater in absolute
amount, or - Its assets are 10% or more of the total assets of all segments
If a segment does not satisfy any of the above thresholds, a company may still elect
to designate it as a reportable segment. Alternatively, the segment may be combined
with other similar segments that do not satisfy the above thresholds. Criteria to con-
sider when determining whether segments are similar and hence may be combined
include:
- Similarity of economic and political conditions
- Relationships between operations in different geographic areas
- Proximity of operations
- Special risks associated with operations in a particular area
- Exchange control regulations and
- The underlying currency risks
Reportable segments must account for at least 75% of the total consolidated en-
terprise revenue. Otherwise, additional reportable segments must be identified, even
if they do not satisfy the 10% thresholds listed above.
A study of the pre- and post-IAS 14R disclosures of a sample of companies prepar-
ing IAS-based financial statements,^17 found a significant increase in the consistency
of segment information with other sections of the annual report. This result is asso-
ciated with the requirement that primary segments now be determined based on the
management approach.
Although the study did not find a significant increase in the average number of pri-
mary segments reported under IAS 14R, several of the companies in the sample pro-
vided primary segment disclosures under IAS 14R that had previously claimed to op-
erate in one line of business thereby representing a significant improvement. On a
less positive note, the study found that under IAS 14R several companies continue to
claim to operate in one line of business while the annual report taken as a whole sug-
gests the existence of multiple line of business segments, thereby suggesting these
companies are not adhering to the spirit of the standard.
(c) Secondary Segments. Under IAS 14R, primary segments are determined based
on the internal organization of the enterprise. If the primary tier is based on busi-
ness/geographic segments, the second tier is based on geographic/business segments.
If the company’s organizational structure resembles neither business segments nor
geographic segments, IAS 14R requires the company to choose between business
segments and geographic segments for its primary and secondary tiers. In contrast to
the North American standard, mixed segments (see above discussion of Wal-Mart’s
segmental reporting) are not allowed.
22.4 GLOBAL BENCHMARK: IAS 14 REVISED 22 • 15(^17) Street and Nichols, 2002.