Operating segment reporting

Segment reporting is mandatory only for listed entities (or those in the process of listing), but a SaaS group approaching IPO must retroactively reconstruct its segment disclosures around how the chief operating decision maker (CODM) actually reviews performance, and getting this wrong at listing exposes previously hidden loss-making units or masks concentration risk that investors specifically look for in the prospectus. Because the standard is built entirely around internal management reporting rather than a prescribed structure, the segments an entity discloses can materially change the story its financial statements tell.

Is the entity listed, or in the process of listing, making segment disclosure under IFRS 8 mandatory? Who is the chief operating decision maker, and what discrete financial information do they actually review regularly in board packs or management reports? Are segments defined by product line, geography, or both, consistent with how the CODM allocates resources and assesses performance internally?

1. Identify the chief operating decision maker (CODM), the person or group that allocates resources and assesses performance, which may be an individual (CEO) or a management committee, not necessarily the board.
2. Review the internal management reports actually used by the CODM (monthly business reviews, board packs) to identify the components regularly reviewed and for which discrete financial information is available.
3. Apply the three IFRS 8 tests to each component: it engages in business activities that may earn revenue and incur expenses; its results are regularly reviewed by the CODM to assess performance and allocate resources; discrete financial information is available.
4. Apply the quantitative thresholds (10% of combined revenue, reported profit/loss, or assets) to determine which operating segments are individually reportable.
5. Consider voluntary or required aggregation of segments only where they have similar economic characteristics AND are similar across the qualitative criteria (nature of products/services, production processes, customer type, distribution methods, regulatory environment), aggregation to hide a struggling unit is not permitted.
6. Ensure at least 75% of consolidated external revenue is covered by reportable segments, adding further segments if needed even if below the quantitative thresholds.
7. Reconstruct comparative-period segment information consistently with the current CODM view for the IPO track record period.

Report each segment's revenue, profit or loss, and assets/liabilities using the same measures the CODM actually uses internally, even if these differ from IFRS recognition and measurement principles (e.g., an internally used non-IFRS profit metric or allocation of shared costs on a management basis). Provide a reconciliation of total segment revenue, profit or loss, assets, and liabilities to the corresponding consolidated IFRS amounts, explaining each material reconciling item (e.g., unallocated corporate costs, eliminations of intersegment transactions, measurement differences).

Disclose: factors used to identify reportable segments and the basis of organization (products/services, geography, regulatory environment); types of products and services each segment generates revenue from; segment revenue (external and intersegment), profit or loss, and assets/liabilities; a reconciliation of segment totals to consolidated IFRS figures; revenue from external customers by product/service and by geography; revenue from major customers where a single customer contributes 10% or more of total revenue (naming the segment(s) involved, not necessarily the customer); the measurement basis used for each segment item if it differs from IFRS.

• Defining segments around a desired external narrative rather than how the CODM actually reviews the business internally, effectively reverse-engineering the disclosure
• aggregating a loss-making unit into a larger, profitable segment without meeting the similar-economic-characteristics and qualitative aggregation criteria
• maintaining an internal management view for board reporting that differs from the external segment disclosure without reconciling why
• omitting major-customer concentration disclosure when a single customer exceeds the 10% threshold
• failing to identify a de facto CODM (e.g., a management committee acting collectively) because no single named individual holds the title.