Segment Reporting

Reportable segment disclosures

Identifying factors - factors used to identify reportable segments including basis of org should be disclosed products and services - the types of products and services from which reportable segment derives its revenues must be disclosed profit or loss - must be disclosed if amounts are included in calculation of segment profit or loss revenues from external customers and revenues from transactions with other internal operating segments Interest revenue interest expense depreciation unusual items equit in net income of investees income tax expense or benefit significant noncash iems assets liabilities (IFRS only) Measurement criteria Reconciliations

What is an enterprise required to disclose?

It is required to disclose segment profit or loss, segment assets and certain related items, but is not required to report segment cash flow.

Is every enterprise an operating segment?

No it is not necessarily an operating segment or part of an operating segment Corporate headquarters not an operating segment Pension plan is not an operating segment

Materiality tests for quantitative thresholds for reportable segments - 2

75% reporting sufficiency test - if total of external revenue reported by operating segments constitues less than 75% of external revenue, additional operating need to be identified as reportable segments even if they do not meet the above 3 test until at least 75% of external revenue is included in reported segment - the practical limit to the number of segments is 10

What is an operating segment?

A component of an enterprise that engages in business activities from which it may earn revenues and incur expenses and whose operating results are regularly reviewed by the enterise's chief operating decision maker and for which discrete financial information is available (traceable cash flow)

Name four required disclosures for segments of an enterprise

Products and services - Geographic areas - Major customers - all enterprises that generates 10% or more of its revenue from sales to a single customer must disclose that fact Operating segments

Segment Reporting applies to:

Public companies only, not apply to not-for-profit organizations, nonpublic companies or separate financial statements of members of a consolidated group if both are included in same financial report.

segment profit or loss defined formula

Revenues less directly traceable costs less reasonably allocated costs equals operating profit (or loss) (EBIT)

What does IFRS require to disclose segments?

The disclosure of segment liabilities if such a measure is regularly provided to the Chief operating decision maker. US Gaap does not require disclosure of segment liabilities.

What are reportable segments?

They are operating segments of an enterprise that meet the criteria for separate reporting. If they exhibit similar long-term financial performance they may be aggregated into a single operating segment if aggregation is consistent with objectives and principles of segment reporting or the segments have similar economic characteristics and the segments are similar in 1. nature of products and services 2. nature of the production processes 3. the type or class of customer for their products and services 4. the methods used to distribute product or provide services and 5. the nature of the regulatory environment (for example banking, insurance or public utilities)

What is the objective of segment reporting?

To provide information on the business activities and the economic environment of a company to help users of the financial statements: 1. To better understand the enterprises's performance 2. Better assess its prospects for future net cash flows, and 3. Make more informed judgments about the enterprise as a whole.

Important: Intercompany Transactions

Transactions between the segments of an enterprise are not eliminated in a consolidation between the parent company and subsidiaries.

Required disclosures for all public enterprise?

financial statements for public business enterprises must report information about a company's 1. operating segments 2. products and services 3. geographic areas. 4. Major customers

items excluded from segment profit or loss

general corporate revenues general corporate expenses interest expense income taxes equity in earnings and losses of an unconsolidated subsidiary gains or losses from discontinued operations minority interest

all other segments

other business activities and operating segments that are not reportable based on materiality tests should be combined and disclosed in all other segments category

Name two Quantitative thresholds used in identifying reportable operating segments

1. 10% size test (must only meet one) revenue - meets size test if reported revenue is 10% or more of combined revenue 2. 75% reporting sufficiency test