Ind AS 108 identifies operating segments using the "management approach": a segment is a component of the entity whose operating results are regularly reviewed by the chief operating decision maker (CODM) — the person or group that allocates resources and assesses performance, not necessarily a specific job title — to make decisions about resources and assess performance, and for which discrete financial information is available. The standard deliberately defines segments by how the business is actually managed internally, rather than imposing an external classification scheme, which means the segments in the financial statements should match how management genuinely reviews the business, not a structure built just for the disclosure.
The quantitative thresholds for reportability
| Threshold | Test |
|---|---|
| Revenue test | Its reported revenue (external and intersegment combined) is 10% or more of total combined segment revenue |
| Profit or loss test | 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 |
| Assets test | Its assets are 10% or more of the combined assets of all operating segments |
Regulatory requirement
If the total external revenue reported by operating segments constitutes less than 75% of the entity's total revenue, additional segments must be identified as reportable (even if they individually fail the 10% thresholds) until at least 75% of total revenue is included in reportable segments — a check worth performing explicitly, since it can require disclosing segments that would otherwise have been aggregated as "all other."
What audit review actually checks
- 01Confirm the segments disclosed actually match internal management reportingRequest the management reports actually reviewed by the CODM and compare them to the disclosed segment structure — a mismatch between the two is a direct indication the disclosure doesn't follow the management approach.
- 02Verify the 10% thresholds and the 75% revenue test were actually appliedNot assumed to be satisfied by the existing segment structure carried forward from last year without re-checking against current-year figures.
- 03Check the required reconciliation to entity totalsInd AS 108 requires reconciling total segment revenue, profit or loss, and assets to the corresponding entity totals in the financial statements — unallocated items and eliminations have to be disclosed separately, not simply absorbed silently into the reconciliation.
Common practice, not a requirement
A company reorganising its internal management reporting structure mid-year — a genuine change in how the CODM reviews the business — should reflect that change in its segment disclosure, with prior-period segment comparatives restated to the new structure, unless the information needed to restate isn't available without undue cost or effort.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Audit data & extractsReviewing a client's chart of accounts before the auditSuspense ledgers with material balances, similar expenses grouped three different ways: the structural problems in a chart of accounts that are far cheaper to fix before year-end close than after.
- Audit documentationInd AS 1: presentation of financial statements, and what a complete set actually requiresFour statements plus notes isn't optional structure — Ind AS 1 defines exactly what counts as a complete set, and a financial statement missing one piece isn't compliant regardless of how good the other three look.
- Audit data & extractsExtracting a usable general ledger for audit testingDate, voucher type, narration, debit, credit, running balance: what a general ledger extract needs, and why a day-book export and a ledger-wise export are not interchangeable.
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