Ind AS 108 requires entities to disclose information about their operating segments — the components of the business as seen through the eyes of management. Its defining idea is the management approach: segments are identified, and their results reported, on the basis of the internal reports that the entity's senior decision-maker actually uses to run the business and allocate resources. This is a fundamentally different philosophy from AS 17, which defines segments by their risk-and-return characteristics and reports them using financial-statement measures. For a diversified entity, Ind AS 108 aims to let outside users see the business the way insiders do.
Objective and scope
The core principle is that an entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates. The standard applies to the separate or individual financial statements of an entity (and the consolidated financial statements of a group with a parent) whose debt or equity instruments are traded in a public market, or that files (or is in the process of filing) its financial statements with a securities regulator for the purpose of issuing instruments in a public market. If a financial report contains both the consolidated financial statements of a parent within the scope of the standard and the parent's separate financial statements, segment information is required only in the consolidated financial statements.
The management approach and operating segments
An operating segment is a component of an entity: that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity); whose operating results are regularly reviewed by the entity's chief operating decision maker (CODM) to make decisions about resources to be allocated to the segment and to assess its performance; and for which discrete financial information is available. This definition is the essence of the management approach — segments are the pieces of the business that the CODM actually monitors and resources.
The chief operating decision maker is a function, not necessarily a person with a specific title — it identifies the function of allocating resources to and assessing the performance of the operating segments (this might be, for example, the chief executive officer, the chief operating officer, or a group of executive directors). The way management has organised the entity for making operating decisions and assessing performance (the internal reporting structure) drives the identification of segments.
Reportable segments and aggregation
An entity reports separately information about each operating segment that has been identified, or that results from aggregating two or more segments, and that exceeds the quantitative thresholds. Operating segments may be aggregated into a single operating segment if aggregation is consistent with the core principle of the standard, the segments have similar economic characteristics, and they are similar in each of a number of respects (the nature of the products and services, the nature of the production processes, the type or class of customer, the distribution methods, and, if applicable, the nature of the regulatory environment).
The quantitative thresholds for a separately reportable segment mirror the familiar 10% tests: an operating segment is reportable if its reported revenue (external and inter-segment) is 10% or more of the combined revenue of all operating segments; or the absolute amount of its reported profit or loss is 10% or more of the greater, in absolute amount, of the combined reported profit of all profitable segments or the combined reported loss of all loss-making segments; or its assets are 10% or more of the combined assets of all operating segments. As under AS 17, the entity must ensure that the separately reported segments constitute at least 75% of the entity's external revenue, adding further segments if necessary.
Measurement — internal figures
A distinctive consequence of the management approach concerns measurement. The amount reported for each operating segment item is the measure reported to the chief operating decision maker for the purposes of making decisions about allocating resources to the segment and assessing its performance — even if that measure is determined on a basis different from the entity's Ind AS financial statements. In other words, segment figures are the internal management figures, not necessarily the Ind AS figures. Because of this, the standard requires reconciliations of the total of the reportable segments' revenues, reported profit or loss, assets, liabilities, and other material items to the corresponding entity amounts in the financial statements. This use of internal measures (with reconciliations) is a key difference from AS 17, which requires segment information to conform to the financial-statement accounting policies.
Entity-wide disclosures
Even entities with a single reportable segment must provide certain entity-wide disclosures (unless the information is already provided as part of the segment disclosures), namely: information about products and services (external revenue for each product and service or group); information about geographical areas (external revenue attributed to the entity's country of domicile and to all foreign countries in total, and non-current assets similarly split); and information about major customers (if revenues from a single external customer amount to 10% or more of the entity's revenues, that fact, the total revenue from each such customer, and the segment reporting the revenue). These entity-wide disclosures are a feature of Ind AS 108 that AS 17 does not require in the same form.
A brief illustration
A group is run by its CEO (the CODM), who reviews internal reports for three divisions — industrial machinery, consumer appliances, and financial services — allocating resources and assessing performance division by division. Under Ind AS 108, these three are the operating segments, because that is how management actually monitors the business. Each exceeds the 10% thresholds, so each is separately reportable, and the group reports, for each, the segment figures as presented to the CEO — even where those internal measures differ from the Ind AS figures — with reconciliations to the group totals. The group also gives entity-wide disclosures: external revenue by product/service, revenue and non-current assets split between India and foreign countries, and, if any single customer provides 10% or more of revenue, disclosure of that reliance. Under AS 17, by contrast, the group would define segments by risk and return and report them on financial-statement measures with primary/secondary formats — a different lens on the same group.
How Ind AS 108 compares with AS 17
The frameworks take fundamentally different approaches. AS 17 uses a risk-and-returns approach: it defines business and geographical segments by their differing risks and returns, designates primary and secondary reporting formats, and requires segment information to conform to the entity's financial-statement accounting policies. Ind AS 108 uses the management approach: segments are the operating segments the CODM reviews, the reported amounts are the internal management measures (reconciled to the financial statements), there are no fixed primary/secondary formats, and there are additional entity-wide disclosures about products/services, geographies, and major customers. So AS 17 defines segments by their economic characteristics and uses financial-statement figures, whereas Ind AS 108 defines segments by how management runs the business and uses management's own figures.
Common pitfalls
Recurring issues include identifying segments on a basis other than the CODM's internal reporting; aggregating segments that do not have similar economic characteristics; failing to ensure reported segments cover at least 75% of external revenue; not providing the reconciliations between segment measures and the entity's financial-statement amounts; and omitting the entity-wide disclosures (products/services, geographies, and major customers), including where the entity has only one reportable segment.
Why this is cleaner on a unified system
Segment reporting under the management approach depends on being able to produce, reliably, the internal management figures the CODM uses and reconcile them to the Ind AS financial statements — as well as the entity-wide splits by product, geography, and customer. This is far easier when the entity's transactions are captured with the necessary dimensional detail in one connected system, so that both the management view and the statutory view, and the reconciliations between them, draw on a single source of truth rather than being assembled from separate tools.
This article is a detailed educational summary of Ind AS 108 in plain language. It is not a substitute for the full text of the standard. Accounting standards are amended from time to time; always verify the current, authoritative text of Ind AS 108 as notified under the Companies Act before relying on it, and consult a qualified chartered accountant for application to your specific circumstances.