reporting segment

ACCOUNTING GUIDELINE

GRAP 18

Segment

Reporting

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Note that this document is not part of the GRAP standard. The GRAP takes precedence while this guideline is used mainly to provide further

explanations on the concepts already in the GRAP.

GRAP 18 on Segment Reporting

Issued February 2020 of 20

Contents

1. Introduction .................................................................................................................. 4

2. Scope .......................................................................................................................... 5

3. Definition and Identification .......................................................................................... 5

3.1 Reportable segments .......................................................................................... 6

4. Disclosure Requirements ............................................................................................. 7

4.1 Specific segment disclosures .............................................................................. 9

4.2 Geographic disclosures .................................................................................... 15

5. Restatement of previously reported information ......................................................... 16

6. Disclosure .................................................................................................................. 17

7. Useful links and references ........................................................................................ 20



1. Introduction

This document provides guidance on the identification, presentation and disclosure of

segments in the entity’s financial statements.

The contents should be read in conjunction with GRAP 18.

For purposes of this guide, “entities” refer to the following bodies to which the standard of

GRAP relate to, unless specifically stated otherwise:

Public entities

Constitutional institutions

Municipalities and all other entities under their control

Trading entities and government components applying the standards of GRAP

Parliament and the provincial legislatures

TVET and CET colleges

Explanation of images used in manual:

Definition

Take note

Management process and decision making

Example



2. Scope

GRAP 18 is applicable to all entities on the accrual basis of accounting. The standard applies

to separate (or individual) financial statements of an entity, as well as to consolidated financial

statements of an economic entity.

3. Definition and Identification

The objective of segment reporting is to provide information about the specific operational

objectives and major activities of an entity as well as the resources devoted to and costs of

these objectives and activities.

Public sector entities control significant public resources and provide a wide variety of goods

or services in different geographic areas with different socio-economic conditions.

Consolidated financial statements provide an overview of assets, liabilities, revenues and

costs etc. of an entity, but a greater level of aggregation is necessary to provide information

which is relevant for accountability and decision making purposes.

When the consolidated financial statements and the separate financial statements of the controlling entity are presented together, then the segment information is only required for the consolidated financial statements.

A segment is an activity of an entity:

that generates economic benefits or service potential (including economic benefits or service potential relating to transactions between activities of the same entity);

whose results are regularly reviewed by management to make decisions about resources to be allocated to that activity and in assessing it’s performance; and

for which separate financial information is available.

Management comprises those persons responsible for planning, directing and controlling the activities of the entity, including those charged with the governance of the entity in accordance with legislation, in instances where they are required to perform such functions.

Refer also to the accounting guideline supporting GRAP 20 on Related Party Disclosures for additional discussion on the definition of management.



In order to identify segments, management would begin by considering the information which

is reported internally (e.g. monthly management accounts). This internally reported

information would typically already meet the segmentation criteria. Management would

typically review information per activity; the fact that it is included in the management accounts

indicate that it is regularly reviewed by management; and finally, separate financial information

is available in order to compile the internal reports.

Parts of an entity which do not meet the definition of a segment are not shown separately in

the segment report. Examples would include administrative or functional divisions/units which

do not on its own generate economic benefits or have service potential.

3.1 Reportable segments

Reportable segments are the actual segments which are reported on in the segment report.

They are the segments identified above, alternatively an aggregation of two or more of those

segments where the aggregation criteria (discussed below) are met. Aggregation is

particularly useful when the number of segments identified is excessive and the provision of

information at such a disaggregated level is no longer useful to users of financial statements.

Many entities will be able to identify segments clearly on the basis of the definition provided above. However, some entities may produce reports in which its activities are presented in a variety of ways. If more than one set of segment information is used by management, then other factors may identify a single set of activities as constituting an entity’s segments, including the nature of these activities, the existence of managers responsible for them, and other information presented to them.

Example: Segment identification

Entity A provides educational services on a primary, secondary and tertiary level. The services are provided in 10 cities throughout the Gauteng province and management monitor performance per level per city, by means of monthly management accounts.

Segments are identified by service level (primary, secondary and tertiary) by geographic location (per city) because each level generates economic benefits or has service potential, is monitored by management for performance measurement and resource allocation and has available financial information. Thus, management will identify segments as primary, secondary and tertiary educational services across the 10 cities.



As mentioned above, management considers internal sources of information in identifying

reportable segments. These include the budget and strategic plans of the entity. Where there

are differences in the disaggregation of information in published budgets / strategic plans and

other internal management reports used to assess the entity’s performance, the entity

identifies the reportable segments based on the application of the definition above rather than

Aggregation of segments

Aggregate if similar economic

characteristics and meet most

of the following conditions:

May aggregate individually

insignificant segments where

practical limit of approx. 10

segments has been reached

Segments share nature of

goods / services delivered

Segments share types / class of

customer or consumer

Segments share methods used

to distribute the goods to

provide the services

Segments share nature of

regulatory environment

OR

Respond

positively to a

majority

Example: Reportable segments

Entity A provides educational services on a primary, secondary and tertiary level. The services are provided in 10 cities throughout the Gauteng province and management monitors performance per level per city, in monthly management reports. Management have determined that 30 segments exist on this basis. (For example, primary education in Johannesburg; primary education in Pretoria etc.).

Management are not sure if all 30 segments should be reported on in the segment report.

Management need to determine if the aggregation criteria can be applied and then determine an appropriate aggregation basis. For example, management would consider aggregating primary education services throughout the geographical areas, if they have similar economic characteristics (Refer to the previous illustration). In addition, if any of the segments are individually insignificant, they could be aggregated together, if the practical limit of 10 is still exceeded after aggregating economically similar segments.

In this example, we will assume that the economic characteristics of primary, secondary and tertiary education services, respectively, are similar across all cities. (In practice, additional factors would be considered. For example, management may further aggregate ‘rural’ areas from more affluent ‘urban’ areas.)

Thus the final reportable segments would consist of: Primary education services, secondary education services and tertiary education services.



on the disaggregation prescribed for the budget / strategic plans. Ideally the management of

an entity’s activities and performance should be aligned with planning and budgeting

documentation submitted to internal and external oversight structures.

Example: Identifying reportable segments

An entity has three key activities. The agreed outputs per activity are assigned a manager who directs the delivery of the desired goods/services by the entity’s cost centres. The human resource and finance function of the entity is centralised into a single cost centre supporting each manager in achieving the entity’s objectives. The budget of the entity is determined per cost centre but in consideration of the inputs, processes etc. required to deliver each activity. Accordingly the budget is approved per cost centre and activity. Each manager receives monthly reports per cost centre and activity. Decisions on performance (financial and non-financial) are based on how the entity is achieving each activity, collectively and individually. Each activity has accordingly been identified as a reportable segment (as defined in GRAP 18).

Activity A

Activity B

Activity C

Cost Centre 1

Cost Centre 2

Cost Centre 3

Cost Centre 4

Cost Centre 5

Cost Centre 6

(HR and Finance)

Manager 1

Manager 2

Manager 3

Manager 4

Reportable Segment 1



**Costs are either attributed to each activity or reported as “unallocated” in segment report



4. Disclosure Requirements

The objective of the disclosures is to enable users of the financial statements to evaluate the

nature and financial effects of the activities in which it engages and the economic environment

in which it operates.

To achieve the objective, disclosures are required on two levels:

Specific segment disclosures

Geographic disclosures

4.1 Specific segment disclosures

Disclosures which must be provided per segment:

General information;

Disclosures about segment surplus or deficit, assets, liabilities and basis of measurement;

and

Reconciliations.

General information

Factors used to identify reportable segments including the basis of organisation (for

example, whether management has chosen to organise the entity around differences in

goods and/or services, geographical areas, regulatory environments, or a combination of

factors)

Whether segments have been aggregated and the basis of the aggregation; and

Types of goods and/or services delivered by each segment.

What is important to note is that the specific segment disclosure is virtually a repeat of information which is reported internally to management.

It is specific to each segment and is not required to comply with GRAP. For example, if management do not allocate depreciation to segments for internal reporting purposes, then the measure of segment surplus or deficit reported in the segment report will be the internally reported segment surplus or deficit, which excludes depreciation. Similarly, if GRAP requires a lease to be recognised as a finance lease, and management determine that the internal reporting objectives are more appropriately met by allocating lease expenses to segments on the basis of cash expenses paid, then this basis will be applied in the segment report.

All differences from segment reporting as compared to GRAP requirements must be reconciled to the entity’s statement of financial position and statement of financial performance.



Information about surplus/deficit, assets and liabilities

An entity should report a measure of surplus or deficit for each reportable segment. An entity

should also disclose the following about each reportable segment if the specified amounts are

included in the measure of segment surplus or deficit reviewed by management, or are

otherwise regularly provided to management, even if not included in that measure of segment

surplus or deficit:

o External revenue from non-exchange transactions;

o External revenue from exchange transactions;

o Revenue from transactions with other segments in the same entity;

o Interest revenue;

o Interest expense;

o Depreciation and amortisation;

o Material items of revenue and expenses disclosed in accordance with GRAP 1 on

Presentation of Financial Statements;

o The entity’s interest in the surplus or deficit of associates and joint ventures accounted for

by the equity method;

o Income tax expenses (if applicable); and

Example: Suggested general disclosures

Following on from the examples above, management would disclose, in the segment report, that the organisation has been aggregated on the basis of the type of services delivered.

(If management had further aggregated the entity into urban and rural areas, then they would explain that the level of aggregation was based on the type of services delivered and on the economic characteristics of the environment in which the services were delivered)

The entity is organised and reports to management on the basis of three major functional areas: primary, secondary and tertiary educational services. The segments were organised around the type of service delivered and the target market. Management uses these same segments for determining strategic objectives. Segments were aggregated for reporting purposes.

The entity operates throughout the Gauteng Province in ten cities. Segments were aggregated on the basis of services delivered as management considered that the economic characteristics of the segments throughout Gauteng were sufficiently similar to warrant aggregation.

Information reported about these segments is used by management as a basis for evaluating the segments’ performances and for making decisions about the allocation of resources. The disclosure of information about these segments is also considered appropriate for external reporting purposes.



o Material non-cash items other than depreciation and amortisation

The measure of surplus or deficit is the surplus or deficit as reported internally to management, for example, in monthly management accounts. If management only use one measure of surplus or deficit, then that is the measure which is used. If management use more than one measure of surplus or deficit, then they need to select the measure which they believe is most consistent with the measurement principles of the corresponding amounts in the financial statements.

Refer to example below.

Entity B receives significant funding but also generates revenue externally. Management review surplus or deficit on a monthly basis. For performance evaluation of the external revenue generating ability, reports are provided per activity including only externally generated revenues as income and exclude depreciation and amortisation expenses. This measure of surplus or deficit is referred to as ‘Externally generated surplus or deficit before depreciation and amortisation.’

An additional report is also provided to management monthly. This report of surplus or deficit includes all revenue and expenses except depreciation and amortisation. This report is referred to as ‘Surplus or deficit before depreciation and amortisation’.

For segment reporting purposes management must choose the report which most closely aligns with the objectives of the financial statements. They would therefore use ‘surplus or deficit before depreciation and amortisation’ as the measure of surplus or deficit.



An entity should report a measure of assets and liabilities for each reportable segment if such

an amount is regularly provided to management. An entity should disclose the following about

each reportable segment if the specified amounts are included in the measure of segment

assets reviewed by management or are otherwise regularly provided to management, even if

not included in the measure of segment assets:

o The amount of investment in associates and joint ventures accounted for by the equity

method; and

o The amounts of additions to non-current assets other than financial instruments, deferred

tax assets (where applicable), post-employment benefit assets (see Standard of GRAP

on Employee Benefits) and rights arising under insurance contracts.

An entity should disclose an explanation of the measures of segment surplus or deficit, assets

and liabilities. For this purpose, at least the following must be disclosed:

o The basis of accounting for transactions between reportable segments (for example, at

cost or at arm’s length);

o The nature of any differences between the measurements of the reportable segments’

surplus or deficit and the entity’s surplus or deficit and discontinued operations (if not

apparent from the reconciliations). Those differences could include accounting policies

and policies for allocation of centrally incurred costs that are necessary for an

understanding of the reported segment information;


assets and the entity’s assets (if not apparent from the reconciliations). Those differences

could include accounting policies and policies for allocation of jointly-used assets that are

necessary for an understanding of the reported segment information;

Also note that transactions between segments are NOT eliminated in the segment report. Thus, for example, revenue between segments will be included in the measure of segment surplus or deficit. The inter-segment transactions will be eliminated in the reconciliation to the surplus or deficit per the financial statements (Refer to section on reconciliations)

Information on segment assets and liabilities is only required if they are regularly reported on to management. In addition, only the assets and liabilities which are included in the information reported regularly to management are included in the segment report.




liabilities and the entity’s liabilities (if not apparent from the reconciliations). Those

differences could include accounting policies and policies for allocation of jointly-utilised

liabilities that are necessary for an understanding of the reported segment information;

o The nature of any changes from prior periods in the measurement methods used to

determine reported segment surplus or deficit and the effect, if any, of those changes on

the measure of segment surplus or deficit;

o The nature and effect of any asymmetrical allocations to reportable segments. For

example, an entity might allocate depreciation expense to a segment without allocating

the related depreciable assets to that segment.

Reconciliations

An entity shall provide reconciliations of:

o The total of the reportable segments’ revenues to the entity’s revenue.

o The total of the reportable segments’ measures of surplus or deficit to the entity’s surplus

or deficit before discontinued operations. However, if an entity allocates to reportable

segments items such as tax expense (if applicable), the entity may reconcile the total of

the segments’ measures of surplus or deficit to the entity’s surplus or deficit after those

items;

o The total of the reportable segments’ assets to the entity’s assets if segment assets are

reported;

o The total of the reportable segments’ liabilities to the entity’s liabilities if segment liabilities

are reported;

o The total of the reportable segments’ amounts for every other material item of information

disclosed to the corresponding amount for the entity.



The following table summarises segment specific disclosure requirements as discussed

above:

Disclosure requirement Additional comments

General information

Factors used to identify reportable segments

Whether segments are aggregated and basis of aggregation

Types of goods/services per segment Requirement is often satisfied by disclosure of the name of the segment

Information about segment surplus/deficit

Measure of segment surplus/deficit As reported internally

External revenue from non-exchange transactions If reported internally

External revenue from exchange transactions If reported internally

Revenue from transactions with other segments If reported internally

Interest revenue If reported internally

Interest expense If reported internally

Depreciation and amortisation If reported internally

Material items If reported internally

Interest in surplus/deficit of investments using the equity method of accounting

If reported internally

Income tax expense (if applicable) If reported internally

Other material non-cash items If reported internally

Information about segment assets and liabilities

Measure of segment assets If reported internally

Measure of segment liabilities If reported internally

Investments in associates and joint ventures using the equity method of accounting


Additions to non-current assets other than financial instruments, deferred tax, post –employment benefit assets, and rights under insurance contracts





Explanation of measurements

Basis of accounting for transactions between segments

Nature of difference between segment surplus/deficit and entity surplus/deficit and discontinued operations

Unless apparent from reconciliations

Nature of difference between segment assets and entity assets Unless apparent from reconciliations and if reported on

Nature of difference between segment liabilities and entity liabilities

Changes from prior period in measurement methods

Nature and effect of asymmetrical allocations

Reconciliations

Reportable segment revenues to entity revenues Will require elimination of inter-segment revenues

Reportable segment surplus/deficit to entity surplus/deficit before discontinued operations

Or reconcile to surplus/deficit after tax if taxation is applicable

Total reportable segment assets to entity assets If reported internally

Total reportable segment liabilities to entity liabilities If reported internally

Total segment amount to corresponding entity amount for every material item

*”Entity” refers to the separate or individual financial statements of an entity and the

consolidated financial statements of an economic entity.

4.2 Geographic disclosures

The geographic disclosures discussed in this section apply to all entities, including those that

have a single reportable segment. Some entities’ activities are not organised on the basis of

differences in geographical areas of operations. Information required by this section should

be provided only if the information is available (or the cost to develop it would not be

excessive).

As a minimum, an entity discloses the geographical areas in which it operates that are relevant

for decision-making purposes, including any foreign countries.

Note that while the information presented in section 4.1 was the same information as presented internally to management, the information used in this section is based on the information used to prepare the entity statement of financial position and statement of financial performance.

If the necessary information is not available and the cost to develop it would be excessive, that fact should be disclosed.



In addition, unless the necessary information is not available and the cost to develop it would

be excessive, an entity discloses:

o external revenues from non-exchange transactions and external revenues from exchange

transactions attributed to the geographical areas in which it operates;

o total expenditure attributed to the geographical areas; and

o non-current assets other than financial instruments, deferred tax assets (where

applicable), post-employment benefit assets, and rights arising under insurance contracts

for the geographical areas.

The following table summarises the entity wide geographical disclosure requirements as

discussed above:


Disclose geographic areas of operation

Disclose geographically:

External revenues from non-exchange transactions External revenues from exchange transactions Total expenditure Non-current assets

Unless information is not available and cost to develop would be excessive

5. Restatement of previously reported information

If the entity changes the structure of its internal organisation in a manner that causes the

composition of its reportable segments to change, the corresponding information for earlier

periods must be restated, unless the information is not available and the cost to develop it

would be excessive. The determination of whether the information is not available and the

cost to develop it would be excessive should be made for each individual item of disclosure.

Following a change in the composition of its reportable segments, an entity should disclose

whether it has restated the corresponding items of segment information for earlier periods.

If an entity has changed the structure of its internal organisation in a manner that causes the

composition of its reportable segments to change and if segment information for earlier periods

is not restated to reflect the change, the entity should disclose segment information for the

current period on both the old basis and the new basis of segmentation, unless the necessary

information is not available and the cost to develop it would be excessive. This should be

done in the year in which the change occurs.



6. Disclosure

Illustrative example on what should be disclosed, as a minimum, in the annual financial statements for segment reporting (refer to the standard for detail):

Entity A provides educational services on a primary, secondary and tertiary level. The services are provided in 10 cities throughout the Gauteng province and management monitor performance per educational level per city, in monthly management reports. Management have determined that 30 segments exist on this basis.

Management have applied the aggregation criteria to the segments to arrive at 3 reportable segments, namely primary, secondary and tertiary education services. In other words, management concluded that the economic characteristics of each city were similar

Notes to the annual financial statements

Segment information

The entity is organised and reports to management on the basis of three major functional areas: primary, secondary and tertiary educational services. The segments were organised around the type of service delivered and the target market. Management uses these same segments for determining strategic objectives. Segments were aggregated for reporting purposes.

The entity operates throughout the Gauteng Province in ten cities. Segments were aggregated on the basis of services delivered as management considered that the economic characteristics of the segments throughout Gauteng were sufficiently similar to warrant aggregation.

Information reported about these segments is used by management as a basis for evaluating the segments’ performances and for making decisions about the allocation of resources. The disclosure of information about these segments is also considered appropriate for external reporting purposes.

Restatement of previously

reported information

Has the structure of reportable

segments changed from prior

year?

Is information available to

restate comparatives without

excessive cost to develop

Restate comparativesPresent current year segment

information on new and old

basis of segmentation

Yes

Yes No

No

No issue



Segment surplus or deficit, assets and liabilities

20x2 Primary

R’000

Secondary

R’000

Tertiary

R’000

Eliminations

R’000

Total

R’000

Appropriated funds X X X XX

Compensation of employees X X X XX

Depreciation and amortisation

X X X XX

Goods and services X X X X XX

Total segment expenses X X X X XX

Total segment surplus X X X - XX

Interest revenue X

Interest expense X

Surplus for the period XX

ASSETS

Segment assets X X X XX

Investments in associates (equity method)

X XX

Unallocated assets XXX

Total Assets X X X XX

LIABILITIES

Segment liabilities X X X XX

Unallocated liabilities XX

Total liabilities X X X XX

OTHER INFORMATION

Capital expenditure* X X X

Impairment of assets X X X

Accrued expenditure X X X

…… X X X

Deferred revenue X X X

* excludes additions to financial assets and post-employment assets

The above is repeated for the comparative year.



Measurement of segment surplus or deficit, assets and liabilities

The accounting policies of the segments are the same as those described in the summary of significant accounting policies, except that pension expense for each segment is recognised and measured on the basis of cash payments to the pension plan.

Inter-segment transfers: segment revenue and segment expense include revenue and expense arising from transfers between segments. Such transfers are usually accounted for at cost and are eliminated on consolidation. The amount of these transfers was Rx-million (Rx-million in 20x1).

Investments in associates are accounted for using the equity method: the entity owns 40% of the shares of HelpUED Ltd, a specialist education foundation providing educational services internationally on a commercial basis under contract to multilateral lending agencies. The investment in, and the entity’s share of, HelpUED’s net profit are included in segment assets and segment revenue of the primary segment.

Information about geographical areas

The entity’s operations are in the Gauteng Province.

The table below indicates the relevant geographical information after eliminating inter segmental transfers:

20x2 External revenues from non-exchange

transactions

R’000

External revenues from

exchange transactions

R’000

Total expenditure

R’000

Non-current assets

R’000

City 1 X X X X

City 2 X X X X

City 3 X X X X

City 4 X X X X

City 5 X X X X

City 6 X X X X

City 7 X X X X

City 8 X X X X

City 9 X X X X

City 10 X X X X

Total X X X X



7. Useful links and references

Reference Location of reference

Frequently Asked Questions (FAQs)

on the Standards of GRAP

ASB website:

http://www.asb.co.za/frequently-asked-questions/

IGRAP 19 on Liabilities to Pay

Levies

ASB website:

http://www.asb.co.za/interpretations-approved-

and-effective/

Guideline on The Application of

Materiality to Financial Statements

ASB website:

http://www.asb.co.za/guidelines/

Standard Chart of Accounts for Local

Government (mSCOA)

National Treasury website:

http://mfma.treasury.gov.za

(mSCOA – Municipal Standard Chart of Accounts)

Illustrative Financial Statements for

local government

National Treasury website:

http://mfma.treasury.gov.za

(mSCOA – Municipal Standard Chart of Accounts)

reporting segment

Documents