FAR Unit 2 Module 4: Segment Reporting
An entity is required to disclose:
-segment profit or loss -segment assets -certain related items
Calculation of segment profit (loss):
Revenues Less: directly traceable costs (internal and external) Less: reasonably allocated costs = Operating Profit (Loss) which is EBIT
10% "Size" Test: Reported Profit or Loss
absolute amount of the segment's reported profit or loss is 10% or more of the greater, in absolute amount, of: -combined reported profit of all operating segments that did not report a loss -combined reported loss of all operating segments that did report a loss
Entity-wide disclosures for major customers
an entity that generates 10% or more of its revenue from sales to a single customer must disclose that fact, the total amount of revenues from each such customer, and the identity of the segment or segments reporting the revenues. -the identity of the customer does not need to be disclosed
Entity-wide disclosures for geographic areas: Revenues
from external customers that are: -attributable to the entity's domicile country -attributed to all foreign countries if amount is material -attributed to individual foreign countries if amount is material -basis for attributing revenues from external customers to individual countries
10% "Size" Test: Assets
identifiable assets are 10% or more of the combined assets of all operating segments -includes the measure of the segment's assets that are reviewed by the chief operating decision maker
10% "Size" Test: Revenue
including both sales to external customers and intersegment sales or transfers (excludes interest income on advances and loans to other segments), has to be 10% or more of the combined revenue, internal and external, of all operating segments
Who does segment reporting apply to?
public companies only -does not apply to not-for-profit organizations, nonpublic, or separate financial statements of members of a consolidated group if both the separate company statements and the consolidated or combined F/S are included in the same report
What is an entity not required to report?
segment cash flow
Reportable segments
segments that meet the criteria for separate reporting
75% Reporting Sufficiency Test
total of external (consolidated) revenue reporting by operating segments is less than 75% of external (consolidated) revenue, additional segments need to be identified as reportable, even if they did not meet any of the three 10% tests, until at least 75% of external revenue is included in reportable segments
Characteristics of an operating segment:
-engages in business activities that may earn revenues and incur expenses (includes these related to transactions with other components of the same entity) -operating results are regularly reviewed by the chief operating decision maker where they make decisions about resource allocation to the segment and assess its performance -discrete financial information is available (traceable cash flows)
Items normally excluded from segment profit (loss):
-general corporate revenues and expenses -interest expense (except for financial institutions) -income taxes -equity in earnings and losses of unconsolidated subsidiary -gains and losses from discontinued operations -minority interest
Entity-wide disclosures for geographic areas: long-lived assets
-located in the entity's domicile country -located in all foreign countries in total in which the entity holds assets -located in individual foreign countries if the amount is material
operating segments may be aggregated into a single segment only if they have the same basic characteristic in each of the following areas:
-nature of products and services -nature of the production processes -type or class of customer for their products and services -methods used to distribute their products or provide their services -if applicable: nature of the regulatory environment
To conform with US GAAP and IFRS, F/S for public entities must report information about a company's:
-operating segments (annual and interim) -products and services -geographic areas -major customers
Reportable segment disclosures for profit or loss items that are included in the calculation of segment profit or loss reviewed by the chief operating decision maker:
-revenues from external customers -revenues from transactions with other internal operating segments -interest revenue -interest expense -depreciation, depletion, and amortization -unusual items, including unusual events and transactions -equity in net income of investees accounted for by the equity method -income tax expense or benefit -significant noncash items other than depreciation, depletion, and amortization expense
Reconciliations for reportable segment disclosures
-total of the reportable segments' revenues to the entity's consolidated revenues -total of reportable segments' measures of profit or loss to the entity's consolidated income before income taxes, discontinued operations, and the cumulative effects of changes in accounting principles -total of the reportable segments' assets to the consolidated assets -total of the reportable segments' liabilities to the consolidated liabilities (IFRS only) -total of the reportable segments' amounts for every other significant item of information disclosed to the corresponding consolidated amount
Transactions between the segments of an entity are
NOT eliminated in a consolidation between the parent company and subsidiaries
Are income and expenses allocated to a segment?
They are not unless they are included in the determination of the segment profit or loss reported by the chief operating decision maker
Reportable segment disclosures for products and services
-products or services from which the reportable segment derives its revenues must be disclosed
Reportable segment disclosures for assets items:
-amount of investment in equity method investees -total expenditures for: additions to long-lived assets other than financial instruments long-term customer relationships of a financial institution mortgage and other servicing rights deferred policy acquisition costs deferred tax assets
Measurement criteria information that must be disclosed:
-basis of accounting for any internal transactions -nature of any differences between measurements of the reportable segments' profits or losses and the entity's consolidated income -nature of any differences between measurements of the reportable segments' assets and consolidated assets, if not apparent from the reconciliation provided -nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss -nature and effect of any asymmetrical allocations to segments
What components are not operating segments?
-corporate headquarters -pension plan
"All Other Segments" Category
-not 10% -already showing over -combine these and disclose in this category
If an operating segment was deemed to be reportable in the immediately preceding period but does not meet the criteria for reportability in the current period, what happens?
may continue to be reported separately if management judges the segment to have continuing significance -if an operating segment was not deemed reportable in the prior period but meets the criteria in the current period, segment data for prior periods presented should be restated to reflect the newly reportable segment as a separate segment
Objective of segment reporting:
provide information on the business activities and the economic environment of a company to help users of the financial statements: 1. better understand the enterprise's performance 2. better assess its prospects for future net cash flows 3. make more informed judgments about the enterprise as a whole
Entity-wide disclosures for products and services
revenues from external customers for each product or service or each group of similar products and services must be disclosed unless it is impracticable to do so, and that fact must be disclosed
Accounting principles used in preparing the F/S should be:
used for the segment information -information on segments presented must be reconciled to the related aggregate amounts in the F/S
