The disclosure of financial information by business segments or geographical areas to help users understand a diversified company's performance.
Segment Reporting (governed by Ind AS 108/IFRS 8) requires companies to disclose revenue, profit/loss, assets, and liabilities for each operating segment separately. An operating segment is a component of the business that earns revenue, incurs expenses, and whose results are reviewed by the Chief Operating Decision Maker (CODM). This helps investors understand which parts of a diversified business are profitable and which are not — information hidden in consolidated totals. Segments are determined by how management internally organizes and reports the business.
A conglomerate's segment report: IT Services segment — Revenue ₹500 crore, Profit ₹75 crore (15% margin). Manufacturing segment — Revenue ₹300 crore, Profit ₹15 crore (5% margin). Real Estate segment — Revenue ₹100 crore, Loss ₹10 crore (-10% margin). Investors can now see the IT segment drives profitability while Real Estate destroys value — this wasn't visible in the consolidated ₹80 crore total profit.
Ensures accurate financial reporting and record-keeping
Helps maintain regulatory and tax compliance
Enables better-informed business decisions
Improves operational efficiency and cash flow management
Under Ind AS 108: All listed companies and companies that are in the process of listing equity/debt. Also required for companies whose equity/debt instruments are traded in a public market. Private companies not listed are exempt. A segment is reportable if its revenue, profit/loss, or assets exceed 10% of the combined total of all segments.
Business segments are based on products/services (e.g., IT Services, Manufacturing, Retail). Geographical segments are based on location (e.g., India, Middle East, Europe). Under Ind AS 108, the primary segmentation follows how management organizes the business (operating segments), with additional geographical disclosures if relevant.
Formal records of a business's financial activities, comprising the Balance Sheet, Profit & Loss Statement, Cash Flow Statement, and Notes to Accounts.
The process of preparing financial and non-financial reports for internal managers to aid in decision-making, planning, and performance control.
A business unit, department, or segment that generates its own revenue and incurs its own costs, with its profitability tracked independently.
A department, team, or function within a business that incurs costs but does not directly generate revenue.
The accounting principle that determines when and how revenue is recorded in the financial statements, based on when it is earned rather than when cash is received.
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