2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.1 Segment Reporting IFRS 8 2 What will you learn By completing this module you will be able to: 1) Describe the CODM 2) Explain how to identify and aggregate operating segments 3) Explain how to determine reportable segments 4) Evaluate the quality of disclosures CODM = chief operating decision maker Agenda Scope and overview The CODM Operating segments Reportable segments Disclosure The closing 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.4 Scope Mandatory if: Debt or equity instruments traded in a public market File or in process of filing instruments in a public market Applies to: Consolidated financial statements Company only financial statements If both presented, applies to consolidated financial statements Voluntary application: Apply standard in its entirety 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.5 Overview: A management approach Identify the CODM Identify operating segments Aggregate operating segments Determine reportable segments Disclose segment information Step 1 Step 2 Step 3 Step 4 Step 5 Agenda Scope and overview The CODM Operating segments Reportable segments Disclosure The closing 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.7 Step 1: Identify the CODM CODM could be a body (e.g. board of directors) or a person (e.g. CEO) CODM is a function and not a titleHighest level of management responsible for: Resource allocation Performance assessment One CODM per reporting entity 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.8 A question for you: CODM (1) Lila-Tech Executive Committee comprises CEO, COO and President Committee assesses performance and makes resource allocation decisions Each Committee member has a single vote Can you identify the CODM? 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.9 A question for you: CODM (2) Same as previous slide, except that the President can override a vote of the Committee Same as previous slide, except that a Supervisory Board reviews the operation of the Committee In each case, can you identify the CODM? Agenda Scope and overview The CODM Operating segments Reportable segments Disclosure The closing 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.11 Step 2: Identify operating segments Not an operating segment Is the component able to earn revenues? Are the components results reviewedregularly by the CODM? Is discrete financial information forthe component available? Operating segment no no no yes yes yes 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.12 Which of these are valid bases for identifying operating segments? Products Services Customers Geography Individual properties Individual plants Legal entity 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.13 Lila-Tech operating segments 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.14 A question for you: Operating segments The Lila-Tech CODM is thinking of changing the information that he receives He would receive: o All operations related to the Outer Regions of Planet Lila in aggregate o Other regions on the basis shown on the previous slide If this change goes ahead, what will be the operating segments? 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.15 Matrix organisations Disclosure of information that enables users of the financial statements to evaluate the nature and financial effects of the business activities in which the entity engages and the economic environment in which it operates Earth Planet Lila Jupiter Mars Neptune New Worlds 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.16 Operating segments might include Jointly controlled entities and associates Vertically integrated operationsStart-up operations Certain corporate activity(e.g. R&D) 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.17 Step 3: Aggregate operating segments Do not aggregate Consistent with core principle? Similar economic characteristics? Similar in each of the following: May be aggregated no no no yes yes yes Nature of productsand services Nature of production processesTypes of customers Distribution methods Regulatory environment 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.18 Similar economic characteristics In our view, also consider: Competitive / operating risks Currency risks Economic / political conditions Useful to consider: Sales metrics Trends in sales growth Return on assets Capital investment levels Operating cash flows Long-term average gross margins In our view, also consider the future Agenda Scope and overview The CODM Operating segments Reportable segments Disclosure The closing 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.20 Step 4: Determine reportable segments 10% of combined revenue for all segments (internal and external) 10% of absolute combined profit orcombined loss (whichever is greater) 10% of combined assets for all segments Reportable segments Revenue Profit or loss Assets But external revenue of reportable segmentsmust be 75% of total revenue or or 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.21 Remaining operating segments All othersegment category Additional aggregation opportunity: Similar economic characteristics Majority of aggregationcriteria met Report separately if useful Agenda Scope and overview The CODM Operating segments Reportable segments Disclosure The closing 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.23 Disclosure Accounting policy Segment information Segment-specific Reconciliations Geographic information Entity-wide Agenda Scope and overview The CODM Operating segments Reportable segments Disclosure The closing 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.25 2011 KPMG AS, a Norwegian member firm of the KPMG network of independent member firms affiliated withKPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.26 Which statements are true? IFRS 8 applies to an entity that is in theprocess of listing debt securities IFRS 8 applies to an entity with listed equity securitiesIFRS 8 applies to all entities Segment information is not required if the information is commercially sensitive and could harm the entity 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.27 Which statements are true? There are 5 steps in applying IFRS 8 The CODM can be a body or a person An entity can have more than one CODM The CODM is a title rather than a function 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.28 Which statements are true? Operating segments are based on informationregularly reviewed by the CODM The CODM can choose which operating segments to aggregateas long as there are at least 2 operating segments The CODM chooses the entitys operating segments Operating segments are aggregated only if they aresimilar in a number of areas (as defined) 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.29 Which statements are true? If any of the revenue, profit or loss, and asset threshold testsis met, then that segment is a reportable segment Any two of the revenue, profit or loss, and asset threshold testsmust be met to have a reportable segment All of the revenue, profit or loss, and asset threshold testsmust be met to have a reportable segment At least 75% of an entitys total external revenue must beattributable to reportable segments 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.30 Which statements are true? An entity always discloses a measure of profit or lossAn entity discloses a measure of total assets and liabilitiesonly if reported to the CODM regularly An entity reconciles total revenue of all reportable segmentsto total revenue in the financial statements An entity discloses reconciliations for revenue, profit or loss,assets, liabilities and other material items 1) The CODM is a function and not a title 2) Operating segments are based on results regularly reviewed by the CODM 3) Operating segments are aggregated only if strict similarity tests are met 4) Reportable segments are based on quantitative threshold tests 5) Both segment-specific and entity-wide disclosures are required Thank you! 2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. 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