38th Webinar on “Operating Segments: Identification, Disclosure and Management Approach under AS”

Ajouté : 2026-05-31

[00:00:26]On behalf of the accounting standards board, I warmly welcome all participants to the 38th webinar on the topic operating segments identification, disclosure and management approach under accounting standards. Identification and disclosure of operating and reportable segments constitute an important aspect of financial reporting as they enable users of financial statements to better understand the nature of the entities business activities, the economic environments in which it operates and the manner in which management evaluates performance and allocates resources.

[00:01:00]Segment reporting enhances transparency and provides stakeholders with meaningful insights into different components of the entity's operations.

[00:01:08]The principles prescribed under accounting standards require entities to identify reportable segments based on the management approach and provide relevant disclosures that reflect the manner in which the key operational and financial decisions are made within the organization. However, practical challenges often arise in identifying operating segments and reportable segments, aggregation of segments, identification of the chief operating decision maker and presentation of segment disclosures considering the practical relevance of this subject.

[00:01:42]This webinar aims to discuss the key principles relating to identification of operating and reportable segments, disclosure requirements, application of the management approach and important implementation issues arising in practice. The session has been designed with a practical and application oriented perspective to help participants gain better clarity on the subject and appreciate its uh significance in enhancing the quality and usefulness of financial reporting.

[00:02:11]Thank you for joining us and we look forward to an enriching and interactive session.

[00:02:16]It's our privilege to extend a very warm welcome to our esteemed speaker for today's uh session CA Vinod Balachan. We are also delighted to have CA Gorab Diwi as the moderator for this session.

[00:02:29]Before we commence the technical deliberations, it gives me great pleasure to briefly introduce him. CA Gorab Diwi is a commerce graduate and a chartered accountant with more than a decade of hands-on experience in financial accounting controllership and revenue accounting functions across large corporate organizations. He began his professional career in 2012 with one of the India's leading battery manufacturing companies and is presently associated with the revenue accounting function of a leading aviation company in India. Over the years he has been actively involved in accounting operations, financial reporting, reconciliation processes, compliance requirements and processor oriented financial management functions in dynamic business environments. He has worked closely with cross functional teams and contributed towards improving operational efficiency, strengthening financial reporting processes and ensuring timely closure of accounting activities. He also actively contributes towards practical knowledge sharing and professional development initiatives by training team members and guiding newly qualified chartered accountants on industry practices and operational aspects of accounting and finance.

[00:03:43]To take the proceedings further, I now hand over the session to CAB di over to you sir.

[00:03:51]>> Thank you. Thank you so much Rahul. Uh welcome all uh on behalf of accounting standard board of Ily welcome you all in today's insightful session on India 10820C by aligning financial reporting with how management view business performance. It is my privilege to introduce our distinguished speaker CA Vinod Balachandran. CA Vinod Balachandran is a fellow charter accountant and insolveny professional with over three decades of rich experience across global finance roles and professional practice. He has held key leadership position in various organizations. What makes him particularly well suited for today's topic is his deep involvement as a faculty with ICAI's accounting standard board for India and IFRS where he contributes to shaping professional understanding of complex standard like India's 108 with his unique combination of practical corporate insight and technical expertise in financial reporting he brings invaluable perspect how operating segments are identified measured and disclosed in line with management reporting. I am confident that today's session will provide us with practical clarity and actionable insight on applying IND 108 in real world scenario. Without further delay, let us welcome CA Vinod Balachendra.

[00:05:18]>> Thank you sir. Thank you Rahul G and Guru G. Today's uh session is uh an interesting session and uh this session actually this particular topic is actually viewed very uh detail in detail by CFOs and analytical consultants because a traditional profit and loss account does not provide much data to the technical users.

[00:05:50]Now from next year from 14 2027 we have the new India's 118 coming wherein the profit and loss account is going to be in the shape of a cash flow statement. So you are going to have more details coming in the profit and loss account. So you will have profit and loss from operating activity, investing activity, financing activity. you will have operating profit and loss account as a separate line item in the profit and loss account.

[00:06:23]So with the profit and loss account undergoing a lot of changes, the interesting part is segment wise profitability will have more focus. Currently if you see in most of the listed companies they have a standardized P&L with a particular profit after tax figure then you have OCI and then you have the total comprehensive income. So from that we hardly know much about the company. Then when we flip the pages and go to the notes and look at segment information the first what we learn is that in the standalone financials you don't need to provide segment information. So it's mostly provided in the consolidated financial statements. So then you flip on to the CFS. There you see certain segments.

[00:07:16]In those segments you see profitability segment wise, asset segment wise, some detailed information.

[00:07:24]Now curiously when you start analyzing the annual report of large companies and look at segments and the P&L and try to have reconciliations you will start arriving at a lot of information about the company their operating profits their performance areas which could get into a problem etc. So today's session is all about understanding a company from a segment perspective.

[00:07:55]So what we propose to do is that we will start with India as segments and also towards the end we will offer a comparative with accounting standards what we were doing in the past.

[00:08:08]So when we go back to 201516 which was the last year before India came into India. If you refer to any of the annual reports of those times up to 2015 16, you will realize that these topics this topic of segment was dealt with in a very different manner because in the accounting standards segment wise information was a rulebased system just like what we have today in the bank balance sheet where the NPS are calculated on a rulebased methodology.

[00:08:43]Rule-based methodology means there is a chart and in the chart you are told that calculate a provision for bad debts in a particular manner. It is just you don't need to apply your mind. It is a mathematical calculation.

[00:08:59]Now when index is going to come into the banking balance sheet from 1427 you have the expected credit loss model coming in wherein the provision for badness have to be looked at from a soft approach.

[00:09:13]meaning qualitative approach. You cannot do a simple paper rule based formula for calculating here. You have to approach each customer based on their credit risk, probability of default etc. In the same way up to 2015 16 companies used to provide segment information based on a rulebased system the account standard 17 at that time on how you should categorize segments.

[00:09:44]So what companies used to do they would make an annual report regular profit and loss account balance sheet then they will look at the AS17 and based on the AS7 rules provide segment wise information which was not necessarily what the company was reviewing meaning information was provided because accounting standards said so that segment wise information if you ask the company CEO or the CFO they will say that okay we have provided segment information based on what the standard told but in our day-to-day review we hardly follow those segments so there was a disconnect between how companies were running their own reviews and the information companies was providing in the annual report so this was the old data before indas so segment information at that time was not really a very uh interesting affair and even in the technical reviews or in the technical talks with companies etc. there was very less focus on these signals because even the companies themselves were not interested because it was more a rule based you know you are told to put it so I'm putting it from 1617 when India came into India we have the India's 108 it completely changed the paradigm of how to create segment wide information so what it is saying What these companies are saying is that whatever you put in segments must be based on what a company reviews.

[00:11:34]The top person in the company maybe CEO, CFO, whoever is a decision maker, they call it the chief operating decision maker.

[00:11:44]How your internal reports are generated?

[00:11:49]Maybe in your internal reporting you are saying I have three types of business car, bus and aeroplane. Three things I'm selling. So I'll have a car segment, bus segment and an aeroplane segment. In reality that's how the company reviews.

[00:12:07]So whatever the company reviews comes into the segment wise information.

[00:12:14]Now when you put what the company's reviews into segment as information there could be a lot of internal data changes internal costings etc etc those things might change those things might not be reflective of what is published in the annual report so then what we used to do or what the standard says you pro provide a reconciliation how the segment PNL links with the audited PNL so with India's coming in from 201617 in India. Companies started providing real information to the readers and this real information is before the India's era wherein it was a rule based presentation and in some cases those segments did not make much sense.

[00:13:08]So this is the background to what is this segment uh information and the segment accounting. So in order to make it a bit interesting since it's an online thing uh I will just do it in the form of short presentation so that it'll be easier for you to you know link and apply the mind instead of me just uh talking full day.

[00:13:33]So this is how it's going to be. This is the 38th webinar by accounting standards board and the topic today is segment information. What it is? How do we identify segments? What all we should disclose? What all we should not disclose.

[00:13:51]So this is what we are trying to do and towards the end we will also review our ARC accounting standard 17.

[00:14:02]how even today some companies may come under the AS7 the large companies who are unlisted. So we will also look at AS7 for unlisted companies how in the accounting standard regime how the disclosures could be a bit different. So we begin with the index we call it the 108 segments.

[00:14:28]So this is a colorful slide. It tells us how do you identify a segment.

[00:14:38]So there are three simple rules.

[00:14:42]One is segment means as I told you internal divisions of the company. Maybe you have two three products, five products.

[00:14:53]So first definition that engages in business activities from which a company may earn revenue and incur expenses.

[00:15:07]So if you have a product or a service which has a capacity to earn revenue and there is expenses can be a segment.

[00:15:20]So here the possibility is it may earn revenues meaning it can be a startup it can be a company which is not yet started generating revenues. So all those things can come under this.

[00:15:38]The second part the company has income and expense of a particular segment.

[00:15:45]Two, that income and expense is reviewed on a daily, weekly, monthly, yearly depending upon the company's MIS.

[00:15:56]How that information is reviewed by the company's boss? We call it the chief operating decision maker. It can be anybody in the company from CFO, CEO, MD, directors, audit committee, whoever.

[00:16:09]Whoever is the decision maker how you present to him data and that data need not be as per the audited accounts data it is our internal MIS data second part and the third part for which discrete financial information is available meaning separate financial information available.

[00:16:32]So wherever you are disclosing data separately of a segment and is reviewed by the boss of the company then it is a segment for the purpose of India 108.

[00:16:49]So you must a company produces is in the business of software.

[00:16:54]So you have to reook in a simple way. If you think what could be the segments of a software company, they sell software, they sell maybe computers, maybe they sell uh implementation, they don't sell software, they implement software. So immediately you're looking at three types of revenue source. Selling of software, implementation of software only selling of some goods like computer or something like that.

[00:17:24]Now conceptually there are three lines of revenue but company CEO reviews the MIS as a single one line.

[00:17:35]He doesn't consider selling of goods or selling of software separately or selling of implementation separately. He looks at it as one business.

[00:17:46]So if the CEO is looking at a one business then it is one business only.

[00:17:53]It all depends upon how you are internally reviewing but logically if you would see no CEO would review sale of goods and sale of service as one business it will never happen. So what will happen as you if you join as a CEO or a CFO you're going to change the MIS to suit logic of Indas.

[00:18:17]So these are separate line items where I can sell certain items separately without bundling it.

[00:18:24]So there is when you are the head of a company or the CFO it is very important first to study how the company's MI systems are generated. Is it even correct? Maybe the MI systems are wrong.

[00:18:37]They were clubbing a lot of segments without segregating this. So knowledge of indas will tell the CEO that it's time to change the internal reporting because the risk and rewards of each and type of business is different. So you cannot bundle all that together.

[00:18:55]So this standard is an alert or gives an idea to the CFO. How should I def refine or define my internal MIS?

[00:19:06]Is my internal MIS correct? Is it logically aligning with the engineers?

[00:19:12]Are the risk and rewards of each segment same or am I bundling up you know segments which cannot be bundled up. So these are the questions first a CFO should ask himself when he joins a company or heads a function.

[00:19:29]Define the internal reporting based on days 108 segments. It only asks three questions. There must be a business from which you may earn revenue and expense. That means it's not mandatory. So a startup can come in this that internal revenue and expense must be reviewed by the boss of the company in a particular format as a internal MIS and separate financial information must be available for each and every segment.

[00:20:02]Three conditions are mandatory for identifying a segment. Now ICA guidance also states that now imagine you are having 20 segments in a company. So the guidance says that more than 10 is not really sensible. So try to 10.

[00:20:22]So minor segments maybe you bunch it up as others because sometimes when you have too much detail MIS your concentration goes away.

[00:20:31]companies cannot focus when you have 20 30 lines of P&L of separate separate segments it may be difficult.

[00:20:40]So common sense and logic also should come in the segments based on materiality.

[00:20:47]So this is the beginning. gives us a basic idea of how do you identify a segment a decision tree for a segment as a CFO you should ask is that particular component able to earn revenue is it reviewed by the boss is separate financial information available yes then it's a segment now you know corporate functions like corporate ho corporate finance corporate marketing corporate there There's a lot of corporate departments which are not really attached to a particular operating center. You have service departments at the top. Now those are not segments. You cannot say corporate finance is a segment because it provides information to all the segments.

[00:21:35]So in segments one of the big thing is challenge of the CFO to set up the cost centers and the profit centers. So we should not mix and match cost center as a profit center and keep it as a segment.

[00:21:50]So in the consolidated part what happens because nowadays we present SFS and CFS you have the standalone and the CFS.

[00:22:00]So in the standalone the segment might be something while in the CFS there could be different segments because the CFS is reviewed in a different way in a different mindset with a different MIS. So when things when if a company has 100 subsidiaries and it is moving into CFS at the CFS level the materiality is larger and discrete financial information or separate financial information getting bunched up a lot. So a CFS how you review will be different from SFS how you review. So CFS and SFS will have different segments. It can have because it is dependent upon how you read the internal MIS of CFS and SFS.

[00:22:53]So you know uh income from joint venture associates all can be segments provided the CFO reviews it that way as a segment. So you will have product segments you will have segment from joint venture associate etc. Because in a SFS the profit centers might be different. In a CFS the company reviews it in a different way. So there is no standard or standard rule that once a segment is for SFS same segment goes everywhere. It can be different.

[00:23:29]This is the bit complex part in the segment which is called aggregation.

[00:23:33]Sometimes what happens you have two types of car brands being sold by a company. The petrol brand and a diesel brand.

[00:23:42]So company CFO says that both are different. Both are petrol segment and diesel segment. He has separate line items for income, expense, profit and assets. For petrol segment for diesel he has a separate.

[00:23:55]So technically conceptually he's reviewing it as two segments. Logically if you think you can merge both as passenger car division. So you can have petrol car, diesel car, CNG cars, electric cars all bunched up into one provided risk and rewards are same.

[00:24:16]So aggregation of segments require expertise and uh you know some uh technical knowledge of the business.

[00:24:25]Sometimes from the face of it, it looks as if it is very easy to bunch up this few segments into one and make it review as one as a passenger car division with subsegments.

[00:24:37]But what you need to be careful here is the nature of products and service, the nature of the production process, the type or class of customers, the method used for distribution, regulatory environment. Now all these things should be in zinc for petrol car, diesel car, electric car, CNG cars. Then you can say all this is one segment.

[00:25:02]Now imagine if a large car company like Tata Motors or Mahindra start giving segment wise information for petrol car segment, diesel car segment, CNG car segment, electric car segment, they're dangerous also because a lot of their internal profitability and protection process data is going to be read by competitors.

[00:25:25]So in segments you have to have a two views.

[00:25:29]One is giving out a lot of unnecessary information to the public at the same time making sure that information given is controlled at the same time in compliance with inlays.

[00:25:43]So aggregation of segment is a large concept. We have to make sure that we use common sense in this. At the same time we have to take care of company information because Segments can be aggregated only if they have common characteristics and when you segregate sometime you will have to regroup previous years etc. Now assume the company has two three small segments which were never reported. You cannot just bunch up all the small segments and say it's an aggregation because each small segment also could have different risk and rewards or different profiles or different economic characteristics or different control perspectives.

[00:26:32]You cannot bunch up. If you want to budge up two three smaller smaller or uh profit centers or products and services of a company make sure that it has got similar economic characteristics so you should have proper data on the backup power to prove that yes I have bunched up based on similar so it's a very interesting process is aggregation at CFO level one of the interesting job is this that you handle a large company and you start reworking their MIS and the segments so that the entire company becomes more logical and the focus is clear instead of wasting time like ABC analysis you don't waste time on C category item you look at the A and B item where the main profits are there rest is not important so you have to have a ABC analysis mindset when you identify segment and when you aggregate segment as the good part of India is where it does not give any definition of what is a segment, profit, loss, assets or liabilities. It does not define it. You have to look at it from business perspective.

[00:27:44]Is your product a sellable product? Is there an income or expenses possible? Is there discrete financial information possible? Is it reviewed by the head of the company? Then yes, it's a segment.

[00:27:56]But there is no definition.

[00:27:58]But for financial users, it is defined that segment wise profitability should be identified at the level of profit before taxes and discontinued operations. PBT at PBT level reconcile segment data with audited data. Below the line, you don't need to care much.

[00:28:23]So this is the interesting part. The India does not define a segment logically. We have to understand and make a segment based on companies internal review and the business environment of the company and the segments.

[00:28:42]Now once you identified segments should you report all the segments? Yes or no is the question. So the indas gives a guidance of materiality. If it is breaching certain material limits, please disclose separately.

[00:28:59]If it is less than those quantity thresholds, you don't need to disclose.

[00:29:03]You may by bunching it as maybe other segments or something like that. So what are the quantity thresholds? It's called the 10% rule.

[00:29:14]Profit and loss account 10%.

[00:29:17]Segment assets and liabilities 10%.

[00:29:21]Easy segment revenue 10%.

[00:29:28]So look at segment assets 10%.

[00:29:35]So if my investment in car business is 10 crores and my total investment in the company is 100 crores that mean 10% of investment is for car business that means car is a segment.

[00:29:55]Now revenue if my car business revenue from car is 10 crores and total revenue is 100 cr income from then car is a segment because the revenue from car is 10%age of total revenue.

[00:30:15]So you have sales revenue, assets revenue and then you have profit and loss. If the profit from your segment exceeds 10%age of the total profit of the company that is also a segment either one. So either breaches the 10% asset rule, 10% profit rule or 10% revenue rules. If either of these categories breach then you have to disclose as a separate segment.

[00:30:48]Now for profit and loss segment 10% there could be a challenge because sometimes company might be in a loss or sometimes some segments might be in profit some segment might be in loss. So how do you calculate that 10%.

[00:31:04]So here this is like for derivative uh taxation in income tax you have to gross up absolute figures meaning all the profits put in one side all the losses put in one side whichever is the higher figure figure considered it for percentage calculation that's a way to calculate 10% of the profit Because in case of a loss this is the way to calculate.

[00:31:35]So first you identify segment.

[00:31:40]So maybe you ended up with 20 segments in a company.

[00:31:44]Then the next step is should you report all the 20 segments? No.

[00:31:51]As per Indas, you should only report material segments and the materiality percentage is 10%age of the total of either the revenue, the assets or the profit and loss. If any of these three conditions are breached, then you have to report.

[00:32:12]So identifying segment and reporting segments both are different.

[00:32:19]So you may have 20 segments but only out of that five segments the 10% mark. So what do you do with the balance 15% 15 segments the balance 15 segments you can disclose in other line as all other segments for the segment wise disclosure if management wants because only then it will tell you to total revenue because you got to reconcile your segment revenue with the audited P&L. So the total revenue is 100 cr while in segments when you add it is only coming to 90 crores because the balance 10 crores are smaller segments which is below the threshold. So for reconciling segment information with audited P&L the 10 cr difference you put it as a separate column under all other segments.

[00:33:09]So the profit and loss account and the segment P&L total both will carry. It is very very important that segment information is reconciled with balance sheet npm.

[00:33:22]Very very very important.

[00:33:27]Now the question sometimes the internal boss reviews several financial metrics.

[00:33:39]He not only reviews the P&L assets profit and loss, he uses some other ratios like AITA or ROI.

[00:33:53]So what do you do? There are several metrics for internal MIS. Which metric do you consider then? So what it says is that the metrics which is most closely related to your audited accounts use that that is a logic because end of the day whatever information you are giving in segment has to reconcile with audited accounts.

[00:34:18]So there is no purpose of giving information segment information of some metrics which has no relevance to PNL and as you must remember from 2027 next year we have the new India 118 which replaces India 1 the format of the P&L is changing it is equivalent to a cash flow format somewhat equivalent now there's a rule there called NPM management performance performance measures. Meaning a company should not communicate to outside world any financial metrics which is not present in the audited information.

[00:35:04]So if a company wants to present a financial metrics other than what is in the audited accounts, the company must write in the notes to accounts what is this new metrics and how it reconciled to profit and loss account.

[00:35:18]So that's the interesting part.

[00:35:20]Companies will no longer be allowed to confuse the re readers by showing some alternate metrics when the company's actually a loss. They cannot win and show no this particular AITA is profit but we are total loss. Those kinds of things will change because companies now have to explain matrixes used other than financial data.

[00:35:44]Now different accounting policies followed. For example, for internal MIS, stock is valued as per FIFO method.

[00:35:52]While for audited accounts, weighted average is used.

[00:35:56]So what do you do?

[00:35:58]It's a strange case. Normally not used that way. But if at all such a thing happened, you must ensure that for segment reporting, follow whatever is in the MIS and then reconcile with the audited accounts.

[00:36:10]Segment report should be exactly what the internal CEO or CFO is reviewing.

[00:36:16]So you should give that is the character of the segment reporting otherwise there is no need of segment reporting. So always keep it in mind that segment reporting is a more live and common sense reporting.

[00:36:30]A typical example of for example in this particular case how much and what do we disclose a typical example company has company says that they have got four segments FMCGua and others.

[00:36:50]Now they have given lot of information.

[00:36:53]Now here you will see the word in revenue segment called external and internal.

[00:36:58]That is something which I have not explained before. I was waiting for this chart because every company will have internal sales to their own internal departments.

[00:37:09]Maybe many companies have internal selling.

[00:37:14]Now internal selling for the purpose of audited accounts will get nullified.

[00:37:22]But for our internal MIS when the CEO looks at it, he knows that division A have sold it to division B. That is the role of division A to sell to division B.

[00:37:33]So what it says is that for the internal MIS you must consider intercomp sales also for the revenue part.

[00:37:44]Even though inter company is not a sale for audited accounts accounts you must take and in the end it will be eliminated.

[00:37:59]So profit asset this is identification of se segments and separate discrete financial information.

[00:38:19]What all should you report?

[00:38:24]So identification is this reporting is in the next slide. Reporting is based on quantitative thresholds or the 10% rule.

[00:38:39]So you may have several segments. You don't need to report everything. You need to report only if the 10% rule is breached. So if you look at it so in the pharma segment 10% rule is B for all the three conditions. So 100% pharma is a segment to be reported.

[00:38:59]The FMCG segment segment assets is exceeding 10%age of total assets. So FMCG is also a segment for Ayurveda all are less than 10%. So you don't need to report ayurveda.

[00:39:14]You may report but you don't need to. If you want to report you put it under all other segments so that it reconciled with the total PN.

[00:39:26]So this is the way we have to look at segments. Ident segments is one job.

[00:39:32]Reporting segment is only if the quantity thresholds are broken which is 10% rules breached.

[00:39:40]However, management may decide that we want to disclose something that is management's call. But they have to be very careful. They cannot just add a segment just because they want to.

[00:39:53]So adequate notes must be mentioned.

[00:39:55]Reasons must be mentioned. The smaller segments can be budged up. So what is not a segment? Management cannot decide that we will disclose a segment. That is not allowed. What is below the quantitative thresholds management can decide to show it as a all other segment.

[00:40:16]Then common expenses many companies have lot of corporate expenses business transformation research and development CSR branding exploratory for oil employee retention pension costs. Now all these expenses are for the entire company as a whole and not really for a segment. You can in the internal MIS you may be aortioning the cost to each uh cost center pos or profit center possible.

[00:40:44]India's Sorry. I think connection.

[00:41:41]Okay. I hope you're able to hear.

[00:41:46]Yeah. Thank you. For a second, I thought connection went off. Okay. Sorry. Now this is a suggested format for disclosure.

[00:41:55]Company sells car parts, motor vessels, software, electronics, finance, all others.

[00:42:06]Okay, I'll just put it again.

[00:42:10]Just one second. I'll share it again.

[00:42:17]Is it visible now?

[00:42:21]Okay.

[00:42:23]Yeah. Okay. Is it clear?

[00:42:26]Okay. Now you will see company has many types of segments.

[00:42:36]You will see second last column. All others. All others are segments which could be segments below the threshold limits which are all being bunched up.

[00:42:47]What is not a segment you should not put here under all others. Segments which are smaller in scale not material you can bunch up if you want. Now this is being done so that your total sales and everything ties with the audited accounts.

[00:43:02]This is a standard format given and whatever different accounting policies other than you know you are showing some income as net income for internal MIS while in the audit account you are grossing up all those adjustments you can disclose in the notes here it's just a standard format you will see on revenue from external customers revenue from internal that is intercomp sales which will be eliminated.

[00:43:36]They are showing interest revenue, interest expense, net revenue, depreciation, segment, P&L, impairment of assets, reportable segment assets, expenditure for reported segment, non-current assets.

[00:43:52]So what happens in the segment in operating profitability? You could have extraordinary expenses.

[00:44:01]You could have large expenses for a particular uh segment.

[00:44:08]You know, all these kinds of things could be there. Under India, there is no concept of extraordinary.

[00:44:14]There's only exceptional.

[00:44:17]So, what happens? Exceptional means items which are reported separately because the materiality is too high like I did a wage settlement where because of the wage settlement the a particular cost is gone up by,000%.

[00:44:38]So I can show it under employee expenses but I can also show it as a separate line as an exceptional employee expenses something like that an example. So in the operating segments you can show exceptional if you feel that if you don't show it the profit and loss could be read differently.

[00:45:01]So if you look at it here they are showing certain items like impairment of assets etc. Some people show it or some people put it as a known technically those can be avoided unless it is coming as part of your internal MIS. So if the internal MIS captures it, you must know an interesting question.

[00:45:36]Can nonreportable segments be combined and disclose with reconciling items in the segment reporting.

[00:45:50]Not reportable segments means they are below the quantitative threshold of 10%.

[00:45:58]So the answer given by ICA is that if your segments are less than 10% below the quantity threshold, you can put all that under all other segments. It is not part of reconciling category.

[00:46:11]What are the reconciliation? You must be able to reconcile all the segment information to the audited P&L and balance sheet. There must be a reco link example like this.

[00:46:27]You must be able to link your profit and loss, revenue, expenses, assets, liabilities and then you can show other material items as a separate box. I will look at it slowly.

[00:46:44]So here how they discloses all the adjustments are shown as a separate column called adjustments.

[00:47:16]Have a look at it.

[00:47:26]Other material items are you know if your internal MIS is picking up all this then please disclose it. The presentation can be we will show you some sample presentations but then you can adjust according to your needs.

[00:47:45]Once you have identified the segments there is one more disclosure which comes in which is popularly understood as geographical disclosures. In India is the word uses entitywide disclosures meaning place in India outside India that's what is called entity wide. So whatever examples we are giving here I have pharma I have car manufacturing I have aeroplane sales whatever the second level of disclosure is you need to tell from where did you earn all this money is it in India or outside India how much you disclose. So here there are three types of information which needs to be provided. This is a very interesting thing. First information is you must detail in your notes on segments some description about your segments. What are the products or services which you have treated as segments? Information about products and services. A brief description.

[00:48:49]Secondly, you must be able to disclose your financial details of in India and outside India like sales in India, sales outside India, non-current assets in India, non-current assets outside India. Two disclosures mandatory revenue and non-current assets in India outside in India.

[00:49:17]And the thirdly information about major customers. If any customer is earning more than 10%age of or is buying more than 10%age of your sales, you must disclose it. You don't need to name the customer. You have to just mention.

[00:49:36]For example, if there are one if there is one customer which is buying 15%age of your sales, you must mention more than 10% one customer is there. You don't need to mention name of the customer related parties. If you're selling mostly to related parties, treat all the related parties as one customer.

[00:50:01]So that is something that is this all the related part is creating as one customer is slightly forgotten in many accounts. So it's a very interesting concept.

[00:50:14]So the location wise how you should disclose revenue from external customers. Here you don't need to mention internal sales. Country of doicile and foreign countries. Country of doicile means where your company is registered.

[00:50:28]So you have to give sales in India, outside India. In India if you are registered in India and outside in India non-current assets you have to disclose but from non-current asset you can exclude financial instruments, deferred tax, post employment benefits, insurance contracts basically the soft things ignored. They see the hard things they want like PPE, intangible, CWIP, RO, US side, investment property. This is what they're looking. The softer side they don't want.

[00:51:04]This is how entity wide is disclosed revenue and non-current assets in India outside India. Here the company is maybe United States company and in other than United States disclosure I'm just giving a sample disclosure in there first is information about products and service which is mandatory you must be able to write notes on what are your products or services or segments. So here it is saying our segments consists of automotive and others.

[00:51:45]This is Tata Motors annual report. So it's very interesting. They have two segments. They say automotive and others. Others consists of IT services and insurance broking.

[00:51:58]So if you look at it, IT services and insurance broking are not aggregatable items. Meaning both have different risk and rewards or different economic circumstances. You cannot bunch them together as one segment. So what they have done they have put it as others.

[00:52:17]They don't treat it as segment they as others.

[00:52:22]So initially they give an idea what is a company's business in and now you see motors how they have given segment information.

[00:52:31]So they have first part is vehicles vehicle financing.

[00:52:37]Then they have the British car brand Jaguar.

[00:52:41]Then they have put interra segment eliminations and others total.

[00:52:50]So beautifully it has been done commercial. So vehicles they have split not based on diesel, petrol, cg. They put it as commercial vehicle is one division. Passenger vehicle is another division.

[00:53:05]Then unallocable they are put.

[00:53:07]Unallocable means which are not segments but there is something happening. So they are put all under unallocable because that's what the standard says.

[00:53:17]If it is not a segment you should not put it as others. You should put it as unallocated.

[00:53:28]So on the left side you will see they have put revenues results reconciliation to P&L segment assets segment liabilities.

[00:53:41]They have reconciled up to profit before tax from discontin operation. They have also shown depreciation amortization separately capital expenditure separately.

[00:54:06]those. If you see capital expenditure is a separate note means large expenditures they have put a note depreciation amortization they have put note segment wise these are all additional information and good information to get an idea. So making this chart for a CFO is the biggest task because he needs to be careful to give out information as per India. At the same time be careful that companies too much of secrets don't go out also. So it's an art of disclosure comply with standards you don't need to give excess information and there this is entity wide so they have put from India outside India non-current assets so in geographical thing you should put in India outside India and non-current decisions and if you see all these figures they put total etc because all these can be linked to the audited P&L account. This is another company hotel company.

[00:55:42]They say they have three segment. They are hotel services, flight catering and intersegment elimination. That is internal sales eliminated.

[00:55:53]So hotel segment mean they selling rooms, food, alcohol, so many things.

[00:55:58]But they put all that as one.

[00:56:06]Then segment results.

[00:56:11]Straight away they went to segment profit. They have not given like expense wise and all. They just put straight away segment profit loss finance cost more easier to understand this one and they reconcile it to profit for the year which is you can link to the annual report.

[00:56:30]So this gives a good idea about segment wise sales, segment wise profit which is the most important because if you're taking investments for capital expenditure etc. Technical reviewers can go through this reports and start questioning the management like where your profits are going down why are you investing too much capex etc. This is assets, liabilities, non-current assets, entitywide disclosures, information about major customers. You see, no single customer contributes more than 10%. If there are two customers which contributes more than 10%, you must write two customers are there. This is for us to get an idea. The company is dependent upon only two three customers.

[00:57:30]So it gives a lot of information.

[00:57:34]Another company IT company an IT major is uh how they disclose revenue by geography, revenue by offerings and all these are reconciled to the audited PNL.

[00:58:18]The items in red are current year and other one is previous figures.

[00:58:24]So if you look at it the learning from the India 108 is that segment information should be live based on how you internally report in your MIS.

[00:58:37]You must not bunch of segments which cannot be bunched up because of economic reasons.

[00:58:44]Smaller segments you may show under others.

[00:58:49]Now what are not segments but as a management you want to tell you cannot show it as a segment. All these can be un unallocated.

[00:59:00]It is very important to restructure the MIS of a company much beforehand so that end of the year the reporting in the MIS flows in with what the companies want to look at the management how the management is performing management metrics how the board of directors looked at the company etc. So this is called segment information.

[00:59:27]How the chief operating decision maker reviews the information of the company that should be disclosed as segments and whatever you disclose in segments you must reconcile with your profit and loss account and balance sheet. In addition to segment information, you must also provide entity wide disclosures which is geographical data of sales and non-current assets. Also, you must give information on if any customer is earning more than 10%age of your revenue.

[01:00:04]It's very very important.

[01:00:07]The segment profitability is the core area where CFOs and technical readers focus on because it gives them lot of information of the company which the ordinary PNL cannot give. So for a CFO also the learning here is please restruct restructure your MIS smartly because end of the day it's the MIS which is going to decide segment reporting and it is not in every anybody's favor to give too much data in segment also extra data no need give data what is required by the index and stop there because this information read by your competitors also they know your profitability segment wise profitability so much information comes out.

[01:00:55]So a lot of careful reading is needed and the greatest news is that whatever you are showing in the segment must be as per internal MIS mandatory.

[01:01:08]Now for comparative purpose we will now go through our urge to accounting standard AS7.

[01:01:17]Now this is applicable for companies which are not under India which are unlisted companies.

[01:01:26]Now the best part is bulk of the companies which are registered as MSME meaning 250 crores and less profitability less sales that is if your sales are less than 250 crores then you are exempt from this standard. So this is only applicable to large unlisted companies or large non-corporates like if there is a partnership company with 500 crores of revenue partnership company 500 crores then segment wise information is needed.

[01:02:15]So please note this is applicable this accounting standards applicability is now very very very limited.

[01:02:24]If you're an MSME ignore this AS7 standard you don't need to give until your turnover and if your turnover breaches the 250 cr mark then only you have to disclose and some other parameters listed companies anyway will move to India is not applicable.

[01:02:42]So what's the big difference between the NDAS and this? The biggest difference is this. As we discussed in the beginning, AS7 is a rulebased standard.

[01:02:54]Meaning companies disclose information because they are asked to disclose.

[01:03:01]This information of segments as per the accounting standard need not necessarily reconcile with how the company looks at operations because that accounting standard was not that tight. India makes it mandatory how the chief operating decision maker reviews that is what your segment information has to be.

[01:03:23]Here it is not that strict.

[01:03:27]You have to look at internal reporting but your ino internal reporting might give you some other segments while your actual reporting or segment might be something else. This was the gray area of AS7.

[01:03:46]We will just go through a few slides of AS7 just to refresh our memory. What is this accounting standard? This was last used by listed companies in 1516 2015 16. After that listed companies moved into Indas. Now this AS70 is only used by large non-corporates which meaning more than 250 crores one criteria. Then there is the borrowing criteria also is 50 crores or something. But focus on the revenue part. If you have more than 250 cr then you have to follow for companies also if you're not an SMC then private limited companies not a small and medium company only then you have to follow AS70 here definition is there for segment in the India as you would observe there is no definition segment is not defined it is based on how your internal MIS is there here segment sement is defined. For example, farmer, software, FMCG, business segment is defined.

[01:04:54]Geographical segment is defined.

[01:05:00]It can be location of assets, location of customers also.

[01:05:06]So there's a proper definition given.

[01:05:09]While for the indas there is no definition.

[01:05:15]So you have to follow you have to be under one of these factors to decide whether what which business segment or entity wide segment has to be followed.

[01:05:30]So this is more restrictive that is why it says in this era of as management would disclose certain segment because it falls under the definition but for internal reporting it may not be a segment may not be but since the format says you have to disclose they used to disclose.

[01:05:54]So here the rules are segments should be identified either as business or geographical while in the India it was only segments entity wide was only disclosure here what in the beginning itself you have to decide business or geography so whichever you decide that is called the primary segment and the other become secondary segment that is the big difference between In the as in the business or geographical segment has to be decided up front.

[01:06:34]Sometimes it gives clarification that if the segment data is not clear look down approach somewhere down your P&L if you can get a segment that is a segment.

[01:06:44]It's called the look down approach intersegment which is there on both sides.

[01:06:55]So it's nothing new that is sales within the company also has to be tracked and here it says the elimination column is given for inter segment eliminations like this in the as you have so many segments this last column you put elimination to remove all the intercomp sales you show it as a separate column it is suggested that even in our index also it's the same Here more definitions in the segment revenue do not include extraordinary item interest in all financial assets liabilities removed unless you are in the financial business.

[01:07:44]So clearly defined now we don't have extraordinary in index from the expenses also there is definition you can remove all these things income tax general administrative expense financial interest clearly defined so AS7 is all about definitions while in India is more free logic it.

[01:08:16]So exclusion from income, exclusions from expenses, what need not be income, what need not be expenses are all defined directly.

[01:08:24]Basically it says all financial in nature don't put unless you are in the financial industry.

[01:08:31]Then the usual line you know general expenses you know corporate expenses etc. don't care that is not needed.

[01:08:44]Then you have the thing of segment assets.

[01:08:48]Again the definition what is a segment SX and it also says segment assets do not include income tax asset meaning deferred tax assets and assets used for general purpose or head office which is somewhat similar but here the advantage is these are all defined while in the ind these are not defined segment liabilities same Ignore all the financing activities and deferred tax liabilities.

[01:09:31]Not important these segments. So in the old as we start with identifying either a business segment or a geographical segment whichever you choose first is called primary se segment. The other is called the secondary segment and these segments are based on difference in products and service risks etc or your internal reporting. Management can also decide which is a segment here. So here the management has got a power to decide a segment and classify it.

[01:10:12]In India clearly it says you know what is not a segment you cannot just decide that it is a segment that is shown on unallocable or segments below the threshold you can show separately but here that's why this as is not a perfect one because a lot of things were put in the report which actually the company never followed in the internal MIS so this was the gap It's all not important.

[01:10:46]Now in the ASO we we have learned that business segment or geographical segment both you have to identify one is primary one is secondary. Once the segments are identified even the management can decide there is a segment if they feel it is very important. Once the segment is identified what you should report the same rules the 10% rule and one rule I actually missed out in the India is that whatever segment you put should be minimum 75%age of total sale that I missed out tell you in the ind the same rule is applicable here imagine the segments identified are only 65%. you need to find something more in your P&L and make sure that minimum 75% is reported as a segment.

[01:11:33]So that aggregation thing you will need to do for that purpose you know bunching up because minimum 75% has to be shown aggregating will be only for similar types of items. So if the similar type of aggregated item and what is reported in MI is only 65%.

[01:11:55]You need to find another category also to make sure that the minimum is 75%.

[01:12:03]Very very important. So otherwise the choice is add segments which are less than threshold which are less than 10% also keep on adding so that the minimum reported segment is 75%. The same rule is applicable for ind.

[01:12:21]So if you look at it the reporting systems are mostly same for India as an as the 10% rule applies and the minimum 75% reporting rule applies.

[01:12:34]Now this is the definition deficiency in AS7 which we were discussing.

[01:12:39]So this is a good write up for you all to read for understanding more correctly.

[01:12:58]Under India 108 operating segment the approach is to align business reporting with internal reporting. This enables the users to view the entity through the eyes of the management.

[01:13:10]So that's the most important. It should align operating segments align with the internal reporting. While in AS7 what happens? Identification of segments and disclosures as per AS7 could be different from the information which is used by the management. As a result of this difference, users may not understand the risk and rewards that management is facing. So up to 2015 16 this AS17 which was being reported by listed companies what was not necessarily a perfect figure it was reflecting rule based information on segment when in reality many managements never looked at those segments or their profitability internal MIS was something else or there was a possibility or it was not perfectly aligned under Indas it is perfectly aligned that is what it says so the deficiency of 17.

[01:14:03]Is this some errors uh in reporting because many times you will see forex earnings coming but there is no foreign exchange uh there is no sales to external c customers meaning there is no entity wide disclosures of earnings from abroad.

[01:14:28]Lot of these mistakes you will see. So this is the interesting part. So maybe that segment was too less to disclose.

[01:14:36]So whenever you have you know things which hit your eyes make sure that the notes are written so that it is clarified.

[01:14:50]Same rules are there in the AS and Indas. If you per if you are presenting CFS also along with SFS segment information need to be presented only in CFS very clear rule you don't need to duplicate the information in SFS and CFS a sample disclosure of the URL AS7 review located on top. They have put unalocable line also eliminations line.

[01:15:47]Unallocable you have mostly segment expenses which cannot be allocated or segment reserve or income or expense which cannot be allocated.

[01:15:59]So here if you would observe segment asset liability income expenditure are all coming out of definitions while in the India 108 it was based on purely MI reporting and not there is no definitions.

[01:16:14]So this is primary segment information.

[01:17:16]entity description geographical here in the as either one can be first either geographical is first that means business segment will be secondary information either one you have to decide which is a more focus for your business primary or secondary here it is see assets within India outside India while in our this one it was for entity wide disclosure in India is we use the word non-current assets here it is the same segment somewhat same it is disclosures but India is looks more organized So primary and secondary is the important thing to realize in as you have to choose which is primary segment.

[01:18:13]Is it a business segment or a geography?

[01:18:15]Which is more important?

[01:18:23]And the additional information unallocable assets and liabilities disclosed separately.

[01:19:25]terms of clarifications.

[01:19:30]Primary second segment is location of asset but customer location different.

[01:19:40]So many times you know location of asset and customer might be different.

[01:19:45]Customer is in America but asset is in Bangalore.

[01:19:50]Those kinds of issues. So you report both In India as we don't have much confusion because entity is clear in India wherever your company is registered is doicile rest is outside India sales sales to external customers and if it is reverse if primary segment is location of customer but asset location is different. Customer in America, asset in Bangalore.

[01:20:42]So again you have to report separately.

[01:20:47]So in the old days there were lot of tricky issues coming because of various rulebased definitions etc which we don't have such issues.

[01:21:23]the comparative differences.

[01:21:46]difference is what we discussed before in days is all about what is discussed what is reported internal MIS is the segment while in the AS it was a rule based thing something was reported and maybe slightly different thing was internally analyzed. So how the risk and reward was analyzed by the management in reality was different from what they put in the annual report. There were chances of difference because it was the India was a structural definition based in as the AS7 was a structural definition with AS while Indas the logic is all about primary reporting to the boss of the company. How the company looks at risk and reward is the important thing to disclose. Hence in is kept without definitions while in as because of rulebased definitions sometimes you had to report certain things which is in reality you never reviewed that was the uh different that is the core main difference and obviously in as there are lot of a lot of guidance not available in gives guidance on how to bunch up uh more segments etc etc Yeah.

[01:23:23]So the learning for CFOs etc is this.

[01:23:27]Please focus on your entire internal MIS much before the audited accounts are finalized. So that structurally internal MIS should be set up based on a knowledge of India as 108.

[01:23:42]So once we understand 108 internally also we can prepare and understand logically how things should be reviewed how things should uh be not reviewed or disclose care to be taken to ensure that we don't disclose too much of information also outside because the customers are looking at it.

[01:24:06]So this brings us to the end of our small presentation on uh uh India's 108 and AS17 segment information.

[01:24:17]Uh we will now take up some queries and if you even after this session if you have any doubts etc you can write to us or call us we'll clarify. This is a very interesting uh indas or and as companies is companies are advised to really understand this uh narrative so that they can plan well and also the information would be well received by the uh technical readers as well as investors of the company because many times if you actually start uh reviewing operating segments you recognize a lot of uh roadblocks which may be avoided by uh companies.

[01:25:05]Thank you and I will hand over to Gam G sir.

[01:25:10]>> Thank you Vinoi.

[01:25:11]>> Thank you so much.

[01:25:14]So now we have questions from our viewers. So number of reportable segment that an entity may disclose in its financial statement.

[01:25:25]Yes, the ICA has also given a guidance saying that sometimes a company may have maybe 25 segments for example maybe really good 25 segment but what IC is suggesting from the Indas is that from the guidance that try not to keep more than 10 for disclosure purpose because otherwise you know you lose track.

[01:25:49]So if a large company like Tata Motors is putting maybe five segments for example.

[01:25:55]So if you want 10 segment you must be like really big. So more than 10 is not really suggested as much as possible. Keep it reasonable and sensible. Uh not to give too much of information and overload the segment information because we anyway have P&L balance sheet nodes so many things are there. This is additional information to understand risk segment wise. So I think more than 10 is not advisable.

[01:26:24]>> Thank you. So now the next question is can an entity omit certain segment disclosure if management believes that such disclosure would be seriously prejudicial to the entities in >> so this question is always asked that imagine I have a company located in maybe Iran and now war is going on. So I don't want to because I know it is all I have $100 million investment there and I know because of war the investment is wiped off now disclosing that the account means I have to write off the in the books I have to do impairment I have to take in the losses so many issues so many companies might say why don't I just ignore it but the India is very clear if it is a reportable segment based on quantity thresholds meaning 10%age of revenue internal plus external 10% of PNL or 10% of assets. If you're breaching this threshold mandatorily you have to disclose there is no option to say that you know I'm sorry because of sensitive nature I'm not disclosing technically there is no allowance given in the Indas for that so war and you know terrorism war or purely a business large business loss because of some takeover something there's no way to hide it technically speaking there is no option for management to decide let's not give it if management how management reviews their internal MIS is what comes there if management is reviewing Iran related segment you have to put Iran related segment you have no choice that's why I'm keeping on stressing in this seminar that CFOs should apply intelligence in setting up internal MIS first much before audit accounts come in with the knowledge of India's 108 so that such situations and embarrassment can avoided but that again depends upon risk and reward control how management looks at things. So director, CFO all should sit together and find out what is my business risk. It is coming from which all segments. Are these reportable segments or are these even segments? Can I bunch up few things so that not to disclose separately? So aggregation criteria will come. So this segment setting up and disclosure is a very very interesting job which all companies should focus blindly. They should not do just because last 30 years they are following companies should not do they should start from India's 10 perspective they should review revise and uh uh refine their internal MIS is my suggestion to the CFOs.

[01:29:08]>> Thank you.

[01:29:09]>> Thank you.

[01:29:10]>> So now the third question is can a component of an entity that does not currently unrevenue still qualify as an operating segment?

[01:29:18]>> Yes. uh the rule is clear even startups can startup is also a segment. Imagine I have today I started up with 100 cr investment some IT startup no revenue.

[01:29:30]Uh so the the definition of India is clearly says which may earn revenue or expense. The rule is what clear it should be reviewed by the chief operating officer as an MIS and separate financial information must be available for this product where there is no sales yet. So separate financial information the CEO is reviewing it separately as a line item then it is a reportable segment we don't need to wait for revenue to come to uh disclose it in the uh uh India as reporting.

[01:30:12]>> Thank you. Now the fourth question is are activities conducted through joint ventures or associate considered under the definition of operating segment?

[01:30:21]>> Yes. Now uh again a joint venture subsidiaries once it comes we are moving into the territory of consolidated financial statement CFS. So we will start with SFS. In the SFS in our standalone financial statement, if I'm getting dividend income from subsidiary for example, I have a subsidiary investment giving me interest or dividend or something and it is something very large more than 10% and all that and if my internal MIS is capturing it as a segment subsidy interest then it is a segment.

[01:30:57]Now the rules when it comes to CFS what happens is that SFS segments are reviewed standalone is reviewed in a particular way by a company. Now if a company has 100 subsidiaries when it consolidates and makes a CFS the person who reads that internal MIS is not maybe looking at individual line items he's looking at a company as a whole. So in CFS you have to look at it as if how the CEO is looking into that operations from a CFS perspective. So SFS will have a different segment. CFS will have a different segment. Joint venture associates we can definitely it's a segment provided it is there in the internal monthly MIS. If the internal review does not have joint venture and this and that then it is not a segment.

[01:31:46]It all depends upon how the CEO is reviewing that data or the head of the company is reviewing the data. That is why again the stress is therefore should spend time on setting up the MIS internal review first and take care of all these issues. In many times in companies MIS this subsidiary investments or interest it's avoided in the MIS many companies I have seen they don't show subsidy and all in their monthly reporting. It is like a yearly something comes then it is not a reportable segment. So if they want to put this they should make sure it is reviewed in a particular way at least monthly quarterly something it is reviewed only then we can take but definitely you must take if it is reviewed.

[01:32:31]>> Thank you. So now the fifth question comes up with the situations like a company has determined its reportable segment in accordance with the India's 108 and has not no noted that the reportable has noted that the reportable segment constitutes 72% of the consolidated revenue if all the remaining operation segment are of similar size which other operating segment should be reported separately to achieve 75% thresh >> correct that 75% logic is a interesting logic because many companies have this problem how to reach the 75. So if I'm reaching at 72 then I need to look down into the P&L and try to identify a segment which is not above the 10%. It may be less than 10% in that quality in that quantity threshold but it must be a segment.

[01:33:21]It has to be a segment. That's the most important thing. So what will happen in all our MIS you will see other income other expense others column is there. So maybe we will need to scratch through the others column and to make sure that if the others can be added to the 72 well and good. So it will be just one segment with 75 or less. But if the economic characteristics of this residual category is not part of the main segment the residual should be shown separately.

[01:33:49]Every company will have some residual category something will be there. So they need to look through the P&L and balance sheet and identify a smaller segment so that this 75% is breached. That is very easy in every company but the mistake what people do is that they just bunch it up with the regular main 72 which is wrong. The main 72 might be in the car business. The rest of three might be maybe insurance business. Maybe insurance has 5% less than quantity threshold. So add the insurance also as a separate line and put a note saying that you added it to meet the 75%.

[01:34:28]75 should be segment that is the rule otherwise it makes no sense to put the segment information.

[01:34:35]So that is why that aggregation we have to understand the internal MIS risk and reward etc etc to reach somewhere that's a >> thank you. Now question number six. Is an entity required to separately disclose an operating segment that no longer meets the quantitative threshold in the current period but qualified as a reportable segment in the prior period.

[01:35:01]Uh there also the index clearly clarifies if the previous year it was a material figure and current year imagine in April or May it was sold off or not there the management can take a call and if the previous year was really material it is better to put previous year and current year will be maybe uh nothing because restating is allowed but again it is based on materiality.

[01:35:28]So I definitely lot of companies we have seen they continue with the same process even though current year is not material but previous year was material they show the figure it is better to report because otherwise that comparative you know will be lost and they can write a note always saying that for comparative purpose it has been continued for because there are chances in April May or something it has discontinued so current year figure is so small that not material but previous year was so material that it was a segment so Better to continue that.

[01:36:00]Better to continue to show.

[01:36:05]>> Thank you. So now question number seven.

[01:36:07]How should an entity determine its coodm when decisions are collectively by a management committee?

[01:36:14]>> Yes. Now this is a tricky part. This now actually and now the NF is also clarified this concept of who is this those charged with governance. Now for a listed company finally the understanding this is a this is not really from India's one I'm just giving a comparative example for people to understand the whole question in our audit report and everywhere we read whom do we whom do we communicate as an auditor with the company do you communicate with the MD CFO board of directors audit committee now for listed companies now the format is come out clear audit committee chairman you have to report to audit committee chairman will on a back end update the board of directors on a continuous basis. The CFO CS the KMPs can join in as and when required if the materiality is there or for information purpose. So there is a format now which has come in through ICA and NFR communications of who are these those charged with governance. In the same logic we should look at it this internal reporting. Now for internal reporting technically the audit committee and all doesn't come into the picture at a regular stage maybe end of the year they may come. So internally we need to look at how the company is structured. So 99.9% of cases there will be MD or CEO.

[01:37:38]So that would be the uh C chief operating decision maker the person who can take decisions. It will be an executive capacity like an executive director, a managing director or a person who has a power to approve budgets etc. It not it is not necessarily the CFO.

[01:37:56]It may be CFO in some companies which was chief of but CFO might not be a decision maker. He might be a planner.

[01:38:04]Decision maker will be MD, executive directors, managing director. The highest level of authority who approves budget. That is how I look at it. But the interesting part is how recently clarification has come on who are those charged with government. That is a good way to start thinking like who who is the one person contact in a company.

[01:38:27]It's a difficult job. So now the root is clear for those charged with governance.

[01:38:32]Here also the route can be made clear.

[01:38:35]They may be two MDs might be there.

[01:38:37]Maybe one person might be executive, one might be non-executive. Better to go with executive people who have the powers to pass budgets and take decisions. That person is the cooddm.

[01:38:51]Thank you. Now the question can geographical geographical regions be considered operating segment even if the management primarily reviews product and performance.

[01:39:03]>> Yeah. Uh this is an interesting question. Yeah, because entitywide disclosures are mandatory under India.

[01:39:10]If you have a other than so in your daily P&L maybe management is looking at sale of cars maybe under that P&L there might be sale of cars northern region southern region something like that there might be sale of cars to Europe now whether it comes in MIS or not it's a question but India's 10 says that once the segments are identified entity wide disclosures are mandatory if So entity wide that is why entity wide disclosure is kept as a separate part while in the AS7 it is starting with business segment or geographical segment you have to choose from beginning one is primary one is secondary while for ind first is you decide segments and reporting the second part is entity wide disclosures.

[01:40:02]So these segments if they are outside India you have to disclose that is what they say country of doicile and other countries. Now the other countries many in many companies annual reports you will see India and rest of the world they will write they won't mention country wise.

[01:40:22]So in some annual reports you will see they will write Europe, America. Some people will not even say Europe they will say Germany, France like that. So I think that is to be taken with materiality and concept. So the answer to this question is very very clear. You have to disclose entity wide disclosures. It is mandatory. there is no getting out of it because that is like an additional information for the and also in India's 115 also if you would see in revenue recognition there is a lot of so some disclosures anyway will come into the annual report in India outside India 115 says so same way this has to be disclosed that's why in India 108 it is called entity disclosures if there's a segment then you have to have entity wide disclosure Sure.

[01:41:15]Thank you. So the question number nine, if internal MIS is prepared using nonINDS measures, should the same be measures be disclosed in segment reporting?

[01:41:25]>> Correct. Now that is a cardinal rule which says that whatever is in the intern maybe cost aortionment in the internal MIS you know maybe I'm apporting cost in a different I'm using LEO FIFO method while for audited I'm using weighted average. So the India says clearly whatever is in internal MIS that is the figure you should put in operating results but reconcile if you are audited accounts give a box which shows difference in treatment for operating segments I'm using this methodology while audited accounts I'm using another methodology this is the difference so how the company reviews internally is mandatory that is why always I'm keeping on saying it is very important important to ensure that the internal MIS are compliant with index.

[01:42:14]Those days of you know anything for internal MIS or that those days are gone. CFOs should ensure that even the internal MIS are coming in conformity except for for example pension cost for internal MI they might be just allocating cost based on some uh percentage of revenue or something while for real thing you'll have to look at staff how many staff is in each department and something like that so many times internal MIS cost allocation and audited account there could be difference my suggestion follow what is in India for operating segments and write notes reconciliations and clarifications right because we are following different accounting policy for internal MIS for this it is a different because of some reason the core idea is to look at internal MIS for finding out which operating profit percentage exit that's how the MD is looking at it every day so there is no purpose for the purpose of the audited account showing some other figure that is why Ind is giving so much focus on internal reporting because that is how the company is reviewing it. Whether it is wrong or right is a different story. You report it and put notes and clarifications and reconcile it to financial audited figures. That is our role as auditoring.

[01:43:36]>> Okay. Thank you. So now question number 10. In case of a recent merger or acquisition from which period should the new business division be considered for segment reporting purpose?

[01:43:48]No, if it is for common entities, common control that is if I'm if I am for example my own subsidiary I have merged or something like that then it is as if the even the subsidiary accounting says it is as if the subsidiary was always I was the same from beginning. So previous year also will be readjusted.

[01:44:10]While if if I if it has become a subsidiary for example only from 1st September of last year. It was never before that in that case a merger or anything happens it will be from 1st September only of last year. It will not be from first April. The question I think what I understand is how to restate previous year. Correct. So common control transactions is considered as if we were always same from beginning that is from 1 April it is as if it was mine only it goes on.

[01:44:46]So that is a but if it is for a new business if it is not common control like I only got it from a particular time then it will be from a particular time that is other than subsidiary associates it's a absolutely brand new person I have purchased a business then that line of item is only coming from the date of acquisition so that I think in India is 103 there is a clear clarification on how acquisition should be accounted common is always accounted as If control existed from the beginning of the 1st April of previous year. So it is as if previous year information also you have to restate.

[01:45:25]Not common control existence will be from the date of acquisition because otherwise that figures might not make sense.

[01:45:35]Uh thank you. So now question number 11.

[01:45:38]If a startup division is currently loss making but is regularly reviewed by management does it qualify as an operating segment?

[01:45:46]>> Yes, startup is an operating segment. It is clearly clarified under IND and this one provided it is reviewed.

[01:45:54]It has to be reviewed in the MIS. So startup is an operating segment. There is an absolute clarity to it even though there is no income but it must be in the internal review. The MIS should capture it.

[01:46:08]So thank you. So now the last question can an entity voluntarily disclose additional segment even if they do not satisfy the quantitative threshold prescribed under the standard.

[01:46:19]>> Yeah this this is a confusion when we read the standard which we have clarified before we'll clarify again.

[01:46:25]First it must be a segment.

[01:46:29]Once it is a segment you must disclose if the 10% is breached the quantitative threshold is breached. Now here the question is I'm less than 10%. Should I disclose or not? So ind says that if the management wants to disclose they can show it under other all other segments less than it should be a segment and less than 10% then it can show it under other all other segments one common line that is what it says common line but if it is not a segment then you cannot disclose then it will be unallocable in that unallocatable column you have to put it so the ruling here is make sure it is a segment that means it is reported in the internal MIS. If it is less than 10% you don't need to report but if you want to disclose or if management feels it is so important to disclose they may do so as all other segments one line not separately and then they can write notes whatever they want.

[01:47:35]>> Thank you. Thank you so much. Uh so I would like to extend our sincere gratitude to our esteemed speaker Mr. Vinod Balachandan for their insightful contribution and for covering the topic with such depth and clarity. Heartfelt thanks also to the chairman and vice chairman of ASB for their thoughtful leadership in bringing such knowledgeable webinars ensuring that our members and stakeholders benefit from such valuable knowledge sharing. Last but certainly not least, I deeply appreciate all our viewers for their active participation in this webinar.

[01:48:10]Your engagement is what makes this initiativeful.

[01:48:14]Once again, thank you all for your support and for being a part of ASB's ongoing effort to promote knowledge dissemination.

[01:48:21]Thank you so much. Thank you everyone.

[01:48:23]>> Thank you very much. Thank you to participants and ASB. Thank you very much.

[01:48:39]Yes sir.

[01:48:40]>> Huh? Thank you.

[01:48:43]>> Yes. Yes. Thank you.