Definition
A geographic segment is a specific geographical area, which can be an individual country or a group of countries, where a company conducts its business operations. Under International Financial Reporting Standard (IFRS) 8, Operating Segments, publicly listed companies, such as those in the UK, are mandated to disclose certain financial information for each geographic segment in their annual financial statements and reports. This information is meant to provide users with meaningful insights into the financial performance and risks associated with different geographic areas of operation.
Examples
- Tech Corporation: A multinational technology company reports its financial performance across geographic segments such as North America, Europe, Asia-Pacific, and Latin America.
- Retail Chain: A global retail chain might disclose segmental revenue, profits, and assets for regions including the United States, Canada, South America, and Europe.
- Pharmaceutical Company: A pharmaceutical firm may present segment information by individual significant markets like the United States, China, Japan, and Rest of Europe.
Frequently Asked Questions (FAQs)
Q1: What financial information must be disclosed about geographic segments? A1: Companies must disclosure revenue, profit or loss, assets, and liabilities related to each geographic segment as part of their financial statements.
Q2: Why is geographic segment information important? A2: This information provides stakeholders with insights into how different geographic areas contribute to a company’s financial performance, helping to assess risks and opportunities in different regions.
Q3: How does IFRS 8 influence geographic segment reporting? A3: IFRS 8 requires companies to report segment information based on internal management reports that are regularly reviewed by the company’s chief operating decision-maker, which ensures that the reporting aligns closely with how the company is actually managed.
Q4: Can companies choose how they present segment information? A4: Yes, companies have some discretion in how they present segment information, which can sometimes reduce the comparability of data between different companies.
Q5: Is segmental reporting limited to geographic segments? A5: No, segmental reporting can also include other types of segments such as business segments or segments based on different types of products or services.
Related Terms
- Operating Segments: Parts of an organization for which separate financial information is available and evaluated regularly by management.
- International Financial Reporting Standard (IFRS) 8: A standard that requires companies to disclose information about their operating segments.
- Segmental Reporting: The practice of breaking down a company’s financial data by different segments, such as geographic areas or business lines.
- Annual Accounts: The yearly financial statement provided by companies to stakeholders, including the balance sheet, income statement, and notes to financial statements.
- Origin of Turnover: The geographic region or other segment from which a company generates its revenue.
Online References
- IFRS 8 - Operating Segments
- UK Financial Reporting Council
- International Accounting Standards Board (IASB)
Suggested Books for Further Studies
- “International Financial Reporting and Analysis” by David Alexander, Anne Britton, and Ann Jorissen
- “Wiley IFRS 2021: Interpretation and Application of IFRS Standards” by PKF International Ltd
- “Financial Reporting under IFRS: A topic-based approach” by Ernst & Young, Graham Holt
Accounting Basics: “Geographic Segment” Fundamentals Quiz
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