Understanding the Requirements for Non-Profit Entities Engaging in Manufacturing | Ind AS 108

The management of Section 8 company (registered under the Companies Act, 2013 with the objective of the social welfare of needy and poor persons) is under the impression that Ind AS 108, Operating Segments, is not applicable to the company as it is not carrying any type of business, whose nature and financial effects are required to be disclosed under segment reporting. The Auditors have raised concerns about the non-preparation of the Operating Segment Report by the company. To resolve the issue the company has sought the opinion of the Expert Advisory Committee (EAC) on the applicability of Ind AS 108, Operating Segment, on the company.

The Expert Advisory Committee (EAC) has noted 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. Further, there is no specific exemption available to any entity from Ind AS 108, Operating Segment, on the basis that it is a not-for-profit organization or section 8 company. The objective of the company is not the generation of profit, however, it is engaged in business activities from which it may earn revenues and incur expenses. Accordingly, the Expert Advisory Committee (EAC) concluded that the company should draw Operating Segment Report as per Ind AS and determine its operating and reportable segments considering its own facts and circumstances.

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