A reportable operating segment gets left out because segment identification under Ind AS 108 is supposed to follow the "management approach" — whatever components of the business the chief operating decision maker actually reviews separately, with separate financial information, to make resource allocation decisions — but in practice the segment note usually gets drafted from the company's legal entity structure, its external reporting lines, or last year's note copied forward, none of which necessarily matches how the business is genuinely managed and reviewed internally.
Where the mismatch specifically comes from
- A business line that's new or recently grown past the quantitative thresholds was below them last year, and the note simply isn't revisited each year with a fresh quantitative test.
- Management reviews internal MIS by product line or geography, but the statutory segment note is drafted by finance based on how revenue happens to be booked in the chart of accounts.
- Two operating segments that meet the aggregation criteria are presented separately out of habit, or two that shouldn't be aggregated are combined because that's how they were presented last year.
- A segment that's material in profitability but small in revenue gets excluded because only the revenue threshold was checked, missing the separate profit/loss and asset thresholds that independently qualify a segment as reportable.
- Segment information is based on the legal reporting structure used for board packs rather than the operating reviews the CODM actually uses to allocate resources, which can be organized completely differently.
Regulatory requirement
Ind AS 108 identifies reportable segments using the management approach and sets three independent quantitative thresholds — revenue, reported profit or loss, and assets — any one of which, at 10% or more, makes a segment reportable on its own even if it fails the other two.
What actually catches the omission
Looking at the actual internal MIS pack reviewed by the CEO or management committee — not the externally published structure — and re-running the three quantitative thresholds fresh each year, rather than carrying forward last year's segment list, is what surfaces a segment that's grown into reportability or was managed separately all along.
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 documentationInd AS 108: operating segments, and why they're defined by management's own view, not the auditor'sSegments aren't drawn by an accounting standard's own logic — they're drawn from how the business genuinely reports to the person who actually runs it.
- Audit workflow & automationSA 320: materiality in planning and performing an auditOverall materiality and performance materiality are not the same number with a safety margin added — they answer two different questions.
- 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.
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