1. What IND AS 108 Covers — Objective and Scope
IND AS 108 requires an entity to disclose information that enables users of its financial statements to evaluate the nature and financial effects of the business activities it engages in, and the economic environments it operates in. It applies to entities whose equity or debt instruments are traded in a public market, or that file (or are in the process of filing) financial statements for the purpose of issuing instruments in a public market.
2. The Management Approach
IND AS 108 uses the "management approach" — operating segments are identified based on the internal reports regularly reviewed by the entity's Chief Operating Decision Maker to allocate resources and assess performance, rather than requiring the entity to construct segments from scratch using an externally imposed risk-and-reward definition. Segment reporting is, in effect, a window into how management itself actually sees and runs the business.
3. The Chief Operating Decision Maker
The Chief Operating Decision Maker (CODM) is a function, not necessarily a single named individual or job title — it identifies whoever (or whichever group, such as the board of directors, a management committee, or the CEO) allocates resources to and assesses the performance of the entity's operating segments. Correctly identifying the CODM requires understanding the entity's actual internal governance and management reporting structure, which can sometimes differ from its formal legal or organisational chart.
4. What Is an Operating Segment
An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the CODM to make decisions about resources to be allocated and assess performance, and for which discrete financial information is available. A start-up operation that has not yet earned revenue can still be an operating segment if it meets the other criteria. Corporate headquarters or functional departments that don't earn revenue are typically not operating segments.
5. The 10% Quantitative Thresholds
An operating segment identified under the management approach becomes a reportable segment — separately disclosed — if it meets any one of these three quantitative thresholds:
| Test | Threshold |
|---|---|
| Revenue | Reported revenue (external + intersegment) is 10% or more of the combined revenue of all operating segments |
| Profit or loss | The absolute amount of reported profit or loss is 10% or more of the greater of: the combined profit of all profitable segments, or the combined loss of all loss-making segments |
| Assets | Segment assets are 10% or more of the combined assets of all operating segments |
6. The 75% Revenue Test and Aggregation
If the total external revenue of an entity's reportable segments is less than 75% of the entity's total revenue, additional segments must be added as reportable — even ones that don't independently meet any 10% threshold — until at least 75% of total revenue is captured within reportable segments. This prevents an entity from cherry-picking only its largest, most favourable segments while burying a large, unexplained residual in a generic "other" category.
Two or more operating segments may be aggregated into a single reportable segment only if they have similar economic characteristics and are similar in the nature of products/services, production processes, customer types, distribution methods, and regulatory environment.
7. Segment Reconciliations
An entity reconciles the total of reportable segments' revenues, profit or loss, assets, liabilities and any other material items to the corresponding amounts in the entity's overall financial statements — separately identifying and describing all material reconciling items, such as unallocated corporate expenses or measurement differences between internal management reporting and IND AS-compliant external reporting.
8. Worked Example — Applying the 10% Thresholds
Scenario: Sarovar Industries Ltd's CODM reviews five operating segments. Combined segment revenue is ₹10,00,00,000, combined profit of profitable segments is ₹1,80,00,000, and combined loss of loss-making segments is ₹40,00,000.
| Segment | Revenue (₹) | Profit/(Loss) (₹) | Reportable? |
|---|---|---|---|
| Textiles | 4,50,00,000 | 1,20,00,000 | Yes — revenue is 45% (>10%) |
| Chemicals | 2,80,00,000 | 60,00,000 | Yes — revenue is 28% (>10%) |
| Packaging | 1,30,00,000 | (40,00,000) | Yes — loss is 100% of combined losses (>10% of ₹1,80,00,000 profit benchmark) |
| Logistics | 80,00,000 | 5,00,000 | No — 8% of revenue, well under 10% of profit benchmark |
| Consulting | 60,00,000 | (5,00,000) | No — below all three thresholds |
Textiles, Chemicals and Packaging are reportable. Their combined external revenue (₹8,60,00,000) is 86% of total segment revenue (₹10,00,00,000) — comfortably above the 75% test, so no further segments need to be added. Logistics and Consulting are combined into an "all other segments" category in the disclosure.
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| Aspect | Old IGAAP (AS 17) | IND AS 108 |
|---|---|---|
| Core identification method | "Risk and reward" approach — segments identified by differing risks and rates of return, defined by the standard | Management approach — segments follow exactly how the CODM internally organises and reviews the business |
| Segment types | Distinguished between "business segments" and "geographical segments" as the two mandatory dimensions | No mandated dimension — segments are whatever the CODM's internal reporting structure actually reflects (which may or may not align with product/geography) |
| Quantitative thresholds | Similar 10% concept existed | Same 10% thresholds, explicitly including the 75% revenue test to prevent under-disclosure |
| Measurement basis | Generally required IND AS/AS-consistent measurement for segment figures | Explicitly permits segment figures to follow internal management reporting measurement, even if it differs from IND AS measurement — reconciled back via the reconciliation disclosures |
10. Other Disclosures Required
For each reportable segment, an entity discloses a measure of profit or loss, total assets, total liabilities (if regularly provided to the CODM), and specified items included in that profit/loss measure where reported to the CODM (revenue from external customers, intersegment revenue, interest revenue/expense, depreciation/amortisation, material items of income/expense, and income tax). Entity-wide disclosures are also required regardless of the segment structure: revenue from external customers for each group of similar products/services, revenue and non-current assets by geographical area, and information about reliance on major customers (disclosing if revenue from a single external customer is 10% or more of total revenue).
11. Common Mistakes CAs Make
Error 1 — Defining segments by product/geography instead of by how the CODM actually reviews the business. The management approach requires segments to mirror internal reporting structure — an entity cannot substitute its own externally-convenient product or geographic categorisation if that isn't how the CODM actually manages the business.
Error 2 — Missing the 75% revenue test after applying the 10% thresholds. Even where no additional segment independently crosses a 10% threshold, more segments must still be added as reportable until 75% of total revenue is captured.
Error 3 — Aggregating dissimilar segments to avoid separate disclosure. Aggregation is only permitted where segments genuinely share similar economic characteristics and the other aggregation criteria — combining segments purely to reduce disclosed granularity isn't a valid basis.
Error 4 — Forcing segment figures to IND AS measurement before internal reporting. Segment figures may legitimately follow internal management reporting conventions (which can differ from IND AS) — the difference is explained through the required reconciliation, not eliminated by restating segment data to IND AS basis before disclosure.
Error 5 — Omitting entity-wide disclosures because segment information is already provided. Entity-wide disclosures (products/services, geography, major customer concentration) are required in addition to segment-level disclosures, not as a substitute for them.
12. FAQs
What is the management approach to identifying operating segments?
The management approach identifies operating segments based on the internal reports regularly reviewed by the entity's Chief Operating Decision Maker (CODM) to allocate resources and assess performance, rather than requiring segments to be defined by risk-and-reward criteria set externally by the accounting standard. Segments are reported the way management actually sees and manages the business internally, even if that internal structure doesn't map neatly onto product lines or geographies.
Who or what is the Chief Operating Decision Maker (CODM)?
The CODM is a function, not necessarily a specific job title — it identifies whoever (or whatever group, such as the board of directors or an executive committee) allocates resources to and assesses the performance of the entity's operating segments. In some entities the CEO is the CODM; in others it may be a management committee, and identifying the CODM requires understanding the entity's actual internal governance and reporting structure, not just its org chart.
What are the 10% quantitative thresholds for a reportable segment?
An operating segment is reportable if its reported revenue (external plus intersegment) is 10% or more of the combined revenue of all operating segments; the absolute amount of its reported profit or loss is 10% or more of the greater of the combined profit of all profitable segments or the combined loss of all loss-making segments; or its assets are 10% or more of the combined assets of all operating segments. Meeting any one of the three tests is sufficient to make a segment reportable.
What is the 75% revenue test?
If the total external revenue reported by an entity's reportable segments constitutes less than 75% of the entity's total revenue, additional operating segments must be identified as reportable (even if they don't meet any of the 10% thresholds on their own) until at least 75% of total revenue is included in reportable segments. This prevents an entity from disclosing only a few large segments while leaving a large, unexplained residual lumped into "all other segments."
What reconciliations does IND AS 108 require?
An entity reconciles the total of reportable segments' revenues, profit or loss, assets, liabilities, and other material items to the corresponding amounts in the entity's overall financial statements, separately identifying and describing all material reconciling items (e.g. unallocated corporate costs, or measurement differences between internal management reporting and IND AS).
Is IND AS 108 the same as IFRS 8?
IND AS 108 is India's converged version of IFRS 8 and follows the same management approach, CODM concept, and quantitative thresholds. It replaces the older Indian AS 17 (Segment Reporting), which used a "risk and reward" approach requiring entities to identify business and geographical segments based on differing risks and returns — a standard-defined test rather than IFRS 8/IND AS 108's approach of simply following how management itself actually organises and reviews the business internally.