The Ultimate Guide to Segment Reporting Under Ind AS 108

In today’s dynamic business environment, companies often operate across multiple products, services, and geographical regions. Investors, analysts, and stakeholders need more than consolidated financial statements—they need to understand how different parts of the business perform individually. This is where Segment Reporting becomes essential.

Is Your Business Truly Transparent? Discover the Power of Segment Reporting Under Ind AS 108?

Segment Reporting turns numbers into narratives, revealing the true performance of every business division. Under Ind AS 108, transparency is not just compliance—it is a competitive advantage.

Ind AS 108 – Operating Segments establishes the principles for disclosing financial information about different business activities and economic environments in which an entity operates.

What is Segment Reporting?

Segment reporting refers to the disclosure of financial and operational information for different parts of a business.

• Products or services
• Geographical locations
• Customer groups
• Regulatory environments
• Internal management structures

Objective of Ind AS 108

The objective of Ind AS 108 is to help users evaluate:

• Nature of business activities
• Financial performance of segments
• Economic environments
• Resource allocation efficiency
• Future cash flow prospects

Scope of Ind AS 108

Mandatory For:

• Listed companies
• Entities issuing securities in public markets
• Consolidated financial statements of listed groups

Not Mandatory For:

• Private unlisted companies (unless voluntarily adopted)

Core Principle of Ind AS 108

Ind AS 108 follows the Management Approach. Operating segments are identified based on internal reports reviewed by the Chief Operating Decision Maker (CODM).

Who is CODM?

The CODM may be:

• Managing Director
• CEO
• Executive Committee
• Board Committee

The CODM is responsible for allocating resources and assessing segment performance.

What is an Operating Segment?

A component of an entity is an operating segment if:

• It earns revenue and incurs expenses
• Its results are reviewed by CODM
• Separate financial information is available

Examples of Operating Segments

Manufacturing Company:

• Steel Division
• Cement Division
• Power Division

IT Company:

• Software Development
• Cloud Services
• Cybersecurity

Reportable Segments Under Ind AS 108

A segment becomes reportable if it meets any of the following:

• Revenue Test: Revenue is 10% or more of combined segment revenue
• Profit/Loss Test: Profit or loss is 10% or more of combined relevant profits/losses
• Asset Test: Assets are 10% or more of combined segment assets

75% External Revenue Rule

Total external revenue from reportable segments must cover at least 75% of total company external revenue.

Aggregation of Segments

Segments may be combined if they have similar:

• Products or services
• Production processes
• Customer types
• Distribution methods
• Regulatory environments

Disclosure Requirements

General Information:

• Basis of identifying segments
• Products/services of each segment
• CODM structure

Financial Information:

• External revenue
• Inter-segment revenue
• Profit or loss
• Assets
• Liabilities (if reviewed internally)

Reconciliations:

• Total segment revenue to company revenue
• Total segment profit to company profit
• Total assets to company assets

Entity-Wide Disclosures

• Revenue by product or service
• Revenue by geography
• Non-current assets by geography
• Major customers contributing 10% or more revenue

Practical Example

ABC Ltd has:

• FMCG Division – ₹800 crore
• Pharma Division – ₹500 crore
• Real Estate Division – ₹150 crore

If 10% threshold is ₹145 crore, all three divisions qualify as reportable segments.

Benefits of Segment Reporting

• Improved investor analysis
• Better management decisions
• Enhanced transparency
• Stronger regulatory compliance

Common Challenges

• Identifying CODM
• Changing internal reporting structure
• Cost allocation issues
• Confidentiality concerns
• Consistency in reporting

Best Practices

• Align MIS with accounting records
• Document management review process
• Review thresholds annually
• Maintain proper reconciliations
• Ensure governance oversight

Conclusion

Ind AS 108 improves financial transparency by showing how management actually views the business. It helps investors, regulators, and stakeholders understand business performance beyond consolidated numbers.

For diversified companies, mastering Segment Reporting under Ind AS 108 is a strategic necessity.