Reportable SegmentsReportable Segments

Reportable Segments

34. Two or more internally reported business segments or geographical segments that are substantially similar may be combined as a single business segment or geographical segment. Two or more business segments or geographical segments are substantially similar only if:

(a) they exhibit similar long-term financial performance; and

(b) they are similar in all of the factors in the appropriate definition in paragraph 9.

35. A business segment or geographical segment shall be identified as a reportable segment if a majority of its revenue is earned from sales to external customers and:

(a) its revenue from sales to external customers and from transactions with other segments is 10 per cent or more of the total revenue, external and internal, of all segments; or

(b) its segment result, whether profit or loss, is 10 per cent or more of the combined result of all segments in profit or the combined result of all segments in loss, whichever is the greater in absolute amount; or

(c) its assets are 10 per cent or more of the total assets of all segments.

36. If an internally reported segment is below all of the thresholds of significance in paragraph 35:

(a) that segment may be designated as a reportable segment despite its size;

(b) if not designated as a reportable segment despite its size, that segment may be combined into a separately reportable segment with one or more other similar internally reported segment(s) that are also below all of the thresholds of significance in paragraph 35 (two or more business segments or geographical segments are similar if they share a majority of the factors in the appropriate definition in paragraph 9); and

(c) if that segment is not separately reported or combined, it shall be included as an unallocated reconciling item.

37. If total external revenue attributable to reportable segments constitutes less than 75 per cent of the total consolidated or entity revenue, additional segments shall be identified as reportable segments, even if they do not meet the 10 per cent thresholds in paragraph 35, until at least 75 per cent of total consolidated or entity revenue is included in reportable segments.

38. The 10 per cent thresholds in this Standard are not intended to be a guide for determining materiality for any aspect of financial reporting other than identifying reportable business and geographical segments.

39. By limiting reportable segments to those that earn a majority of their revenue from sales to external customers, this Standard does not require that the different stages of vertically integrated operations be identified as separate business segments. However, in some industries, current practice is to report certain vertically integrated activities as separate business segments even if they do not generate significant external sales revenue. For instance, many international oil companies report their upstream activities (exploration and production) and their downstream activities (refining and marketing) as separate business segments even if most or all of the upstream product (crude petroleum) is transferred internally to the entity’s refining operation.