IFRS 8: operating segments

A company reports total profit of ₦500 million. That sounds healthy. But what if its beverage division earns ₦700 million and its property division loses ₦200 million? The total hides the problem. International Financial Reporting Standard (IFRS) 8, Operating Segments, makes listed companies break their results down the way their own managers look at them, so investors can see where the money is made and lost.

This topic covers the objective and scope of IFRS 8, how an operating segment is identified, when segments can be combined, the 10% tests and the 75% test that decide which segments must be reported, what must be disclosed, and the disclosures that apply to the whole entity. The previous topic covered related parties. The next topics move on to the standards on recognition and measurement of specific items.

November 2025 Question 4 was worth 20 marks and tested both identification and the quantitative tests, so this is a high-value topic.

Key terms in plain English

Syllabus check

IFRS 8 is examinable at this level. It supports Syllabus Area B, items 5(a) and 5(b), on reportable segments and the segment information to be disclosed, and item 1(b), which lists IFRS 8 among the standards for performance reporting. This topic covers:

• the objective and scope of IFRS 8;
• the identification, aggregation and reclassification of operating segments;
• the quantitative thresholds and the 75% test;
• the disclosures for segments and the entity-wide disclosures;
• how segment information makes the statements more useful.

CAMA 2020 and segment reporting

The Companies and Allied Matters Act 2020 (CAMA 2020) does not set segment rules. They come from IFRS, which the Act makes the required standard.

Objective and scope

Many companies operate in different industries and in different countries. These businesses face different profits, growth and risks. Without segment information, good performance in one area can hide very poor performance in another, and users cannot analyse trends or predict the future.

IFRS 8 requires quoted entities to disclose information about their operating segments so that users can evaluate the nature and financial effects of the activities the entity engages in and the economic environments in which it operates. It applies to any entity whose debt or equity is traded in a public market, and to entities in the process of becoming quoted.

If an entity gives segment-type information that does not comply with IFRS 8, it cannot call it “segment information”.

Identifying operating segments

An operating segment is a component of an entity:

1. that engages in business activities from which it earns revenue and incurs expenses;
2. whose operating results are regularly reviewed by the CODM to decide how to allocate resources and to assess performance; and
3. for which discrete financial information is available.

Not every part of the entity is a segment. A head office that earns no revenue is not. The test is built on what management does, so the reported segments match what management uses to run the business. Segments might follow products, services, geographic areas or a mix, depending on how the CODM looks at the business.

A segment usually has a segment manager who talks to the CODM about results, forecasts and plans.

Can segments be reclassified?

Segments follow the internal organisation. They change only when the entity’s internal structure changes, such as a new management reporting structure, a restructuring or a new way of allocating resources. If the structure changes, the entity restates the comparative segment information unless the information is not available and would cost too much to produce. An entity cannot reclassify segments only because it prefers a different external presentation.

Where nothing has changed inside the business, combining or splitting segments would breach IFRS 8. This was the key point in November 2025 Question 4(a): Maito Plc had no organisational change for seven years, so it could not reclassify its overseas subsidiary out of its separate segment.

Aggregation

Two or more operating segments may be combined into one if combining is consistent with the core principle of the standard, they have similar economic characteristics. They are similar in each of the following respects:

• the nature of the products and services;
• the nature of the production process;
• the type or class of customer;
• the methods used to distribute products or provide services; and
• where relevant, the regulatory environment, such as banking, insurance or public utilities.

Note: the Pathfinder solution is slightly different from ours here. The suggested solution of the Institute of Chartered Accountants of Nigeria (ICAN) to one past question speaks of segments being similar in a “majority” of these respects.

The standard itself says similar in each respect, so we follow the standard. Aggregation reduces the usefulness of the information, because users cannot see the margin or return of each separate segment, so management must weigh that.

Which segments are reportable?

An entity reports separately any operating segment that meets any one of these quantitative thresholds:

A segment that is below every threshold may still be reported separately if management believes the information would be useful to users. Below-threshold segments may also be combined with others if they have similar economic characteristics and meet a majority of the aggregation criteria, or may be shown together in an “all other segments” category.

The 75% test

If the external revenue of the reportable segments is less than 75% of the entity’s total revenue, more operating segments must be identified as reportable, even though they do not meet the 10% tests, until at least 75% of total external revenue is covered.

What must be disclosed

The entity discloses information to help users evaluate the nature and financial effects of its business activities and the economic environments in which it operates.

General information

• The factors used to identify the reportable segments, including the basis of organisation (products and services, geographic areas, regulatory environments) and whether segments have been aggregated.
• The types of products and services from which each segment earns revenue.

Profit or loss, assets and liabilities

• A measure of profit or loss for each reportable segment.
• A measure of total assets, and of total liabilities, if those amounts are regularly given to the CODM.
• The following items if they are included in the segment profit measure reviewed by the CODM: revenue from external customers; revenue from transactions with other segments; interest revenue and interest expense; depreciation and amortisation; material items of income and expense; share of profit or loss of associates and joint ventures under the equity method; income tax expense or income; and material non-cash items.
• The amount of investment in equity-accounted associates and joint ventures, and additions to non-current assets, if included in the segment assets measure.

Reconciliations

Totals of segment revenue to entity revenue; segment profit or loss to entity profit or loss before tax and discontinued operations; segment assets to entity assets; segment liabilities to entity liabilities (if reported); and other material items to the entity’s corresponding totals.

Measurement

Each segment amount is the measure reported to the CODM, which is based on how the entity is run internally. Adjustments and eliminations count only if they are in the measure the CODM uses.

The entity discloses the basis of accounting for transactions between segments, the nature of differences between segment measures and the entity’s figures (for example, allocation of central costs), changes in measurement methods from earlier periods, and any asymmetric allocations (for example, a segment charged depreciation on an asset not allocated to it).

Entity-wide disclosures

Even if there is only one reportable segment, the entity discloses:

• revenue from external customers for each product and service, or each group of similar ones;
• revenue from external customers attributed to its country of domicile and to all foreign countries in total;
• non-current assets located in the country of domicile and in all foreign countries in total; and
• if revenue from a single customer is 10% or more of total revenue, that fact, the total revenue from that customer and the segment reporting it.

The rules in more depth

Why “management approach”

Before IFRS 8, companies reported segments by industry or geography chosen by the standard. Now the segments are the ones the CODM actually uses. This gives users the view management has, and it is cheap to produce because the numbers already exist. The weakness is that two companies in the same industry may report differently.

Why the profit test uses the greater of two totals

If profits and losses are netted, a large profit and a large loss would cancel out and hide both. Using the greater of the profit total and the loss total gives a stable base against which to measure each segment in absolute terms.

Why the 75% test exists

An entity could pass all the 10% tests with a few large segments and leave a lot of revenue unreported in tiny segments. The 75% rule forces enough coverage that most of the business is visible.

Why the CODM is a function and not a title

It might be the chief executive, the executive directors or a management committee. What counts is who allocates resources and reviews performance.

Worked example: which segments are reportable?

1. Totals.
   Revenue (external plus inter-segment): A 420, B 300, C 120, D 60, E 30 = ₦930m.
   Profits of profitable segments = 90 + 60 + 20 + 5 = ₦175m.
   Losses = ₦15m.
   The greater is ₦175m.
   Assets total = ₦4,500m.
2. Thresholds.
   Revenue 10% × 930 = ₦93m.
   Profit 10% × 175 = ₦17.5m.
   Assets 10% × 4,500 = ₦450m.
3. A: revenue 420, profit 90, assets 2,000. Passes all three. Reportable.
4. B: 300, 60, 1,500. Passes all three. Reportable.
5. C: revenue 120 ≥ 93, so it passes the revenue test (profit 20 ≥ 17.5 and assets 700 ≥ 450 also pass). Reportable.
6. D: revenue 60 < 93, profit 5 < 17.5, assets 200 < 450. Fails all. Not reportable on the tests.
7. E: revenue 30, absolute loss 15 < 17.5, assets 100. Fails all. Not reportable on the tests.
8. 75% test.
   External revenue of reportable segments = 400 + 300 + 120 = ₦820m out of ₦900m total external revenue = 91%.
   This is above 75%, so no further segments are needed.
   D and E are shown together as “all other segments” in the reconciliations.
9. CAMA 2020. Because Okeke is listed, it must apply IFRS 8 under the true and fair view and IFRS rule in s. 378.

How to score full marks

• Identify first. Say whether each part meets the three conditions, especially CODM review. A part reviewed by the CODM and with separate information is a segment.
• Calculate all three thresholds with the denominators shown. Examiners give a mark for each calculation.
• Remember inter-segment revenue in the revenue test, but external revenue only in the 75% test.
• Use “any one”. A segment passing one test is reportable, even if it fails the other two.
• Finish with the 75% test and a conclusion. Say which segments are reportable and why.
• For reclassification, link it to a change in internal organisation, and mention restating comparatives.
• For usefulness, explain what users lose when a significant overseas segment is hidden: visibility of performance and risk, comparability and predictive value.

Common mistakes in the exam

• Requiring a segment to pass all three tests. Passing one is enough.
• Leaving out inter-segment revenue in the revenue test.
• Using external revenue in the 10% revenue test, or total revenue in the 75% test.
• Calculating the profit test base on net profit instead of the greater of profits and losses.
• Reclassifying segments without any internal change.
• Treating the head office as a segment even though it earns no revenue.
• Forgetting the entity-wide disclosures and the reconciliations.

Quick revision

• IFRS 8: quoted entities. Management approach.
• Operating segment: revenue and expenses, regularly reviewed by the CODM, discrete financial information.
• Aggregate only if similar economics and similar in each of five respects.
• 10% tests: revenue (with inter-segment), profit (greater of profits and losses), assets. Any one.
• 75% test on external revenue.
• Disclose: factors used, profit or loss, assets, specified items, reconciliations, measurement basis, entity-wide information.
• Reclassify only on change in internal organisation.
• CAMA 2020: ss. 378, 379 to 381, 385, 374(6).

Practice questions

These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.

Recall check: multiple choice

The real ICAN paper has no multiple-choice section. These questions are for quick recall. The written questions that follow are closer to the exam.

Written questions

Model answers

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