ACCA Strategic Business Reporting (SBR) Practice Exam

What does an entity need to disclose about its operating segments?

1. How the entity identified its operating segments

2. The revenue of individual products

3. The fixed costs of each segment

4. The identity of major customers

The correct answer is: How the entity identified its operating segments

An entity is required to disclose how it identifies its operating segments as part of its financial reporting obligations under IFRS 8, 'Operating Segments.' This disclosure is essential as it provides users of the financial statements with a clear understanding of the basis on which the segments are determined and reported. It enhances the transparency and helps analysts assess the performance and prospects of the different parts of the business. Understanding the criteria used for segment identification allows stakeholders to analyze how the entity organizes its operations internally, which reflects the way the management evaluates the performance and allocates resources. This is crucial for users to make informed decisions regarding the entity's overall financial health and strategy. While other disclosures such as revenue of individual products, fixed costs of each segment, and the identity of major customers may have their relevance, they are not required to the same extent as the disclosure regarding how operating segments are identified. This information is foundational for understanding the segment reporting and aids users in interpreting the financial statements effectively.