The unheard of Chief Operating Decision Maker

Accountants invent the fictitious position of Chief Operating Decision Maker in IFRS 8. To apply the standard, accountants must then search for the people holding this position, but only in every company preparing financial statements under IASB standards. He or she can be found by detecting managers who review operating results, regardless of their official title. But not all operating results, only those with a threshold greater than 10% of revenues, profits OR assets. Any one of the three. When found, these operating results define the Operating Segment in the company.

As a definition, this must be one of the most complicated ever. Invent a fictitious manager to define a business segment. Force managers to search them out in reality. And fix parameters on what they manage. If you cannot find the manager or the operating results, no segment reporting is necessary.

I guess, by now, that you cannot believe me, so I have put the full definition of an operating segment below. [1]

Still, the writers of the standard recognise their own complexity and give us explanations. For example, they declare in paragraph 7 that a Chief Operating Decision Maker is ‘not necessarily a manager with a specific title’. Not much help, that! But they do give one practical clue. Our fictitious manager could actually be called the chief operating officer. At last something concrete to work from!

But they spoil it again by inventing yet another hypothetical manager: the ‘segment manager’ who reports directly to the ficticious Chief Operating Decision Maker. [2] By summarising the segment manager’s tasks, a mini job description, they claim to help us define an Operating Segment. Yet another oblique method to define one.

What a roundabout way of getting to an operating segment.

[1] International Financial Reporting Standard 8, Operating Segments, IFRS 8, paragraph 5: An operating segment is a component of an entity:

(a) that engages in business activities from which it may earn revenues and incur expenses,

(b) whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and

(c) for which discrete financial information is available.

[2] International Financial Reporting Standard 8, Operating Segments, IFRS 8, paragraph 9.