F2 M5: Segment Reporting

"all other segments" category

information about other business activities and operating segments that are not reportable based on the "10% size test" and the "75% reporting sufficiency test" should be combined and disclose in an "All Other Segments" category.

when does segment reporting NOT apply?

not-for-profit organizations, nonpublic companies, or separate financial statements of members of a consolidated group (if both the separate company statements and the consolidated or combined financial statements are included in the same financial report).

what are reportable segments?

operating segments of an entity that meet the criteria for separate reporting

75% "reporting sufficiency" test

IF the total of external (consolidated) revenue report by operating segments is less than 75% of external (consolidated) revenue, then additional operating segments need to be identifies as reportable segments, even if they do not meet any of the "10% percent size test", until at least 75% of external (consolidated) revenue is included in reportable segments.

which items must be individually disclosed for assets?

- amount of investment in equity method investees. - expenditures for (1) additions to PPE, (2) LT customer relationships of a financial institution, (3) mortgage and other servicing rights, (4) deferred policy acquisition costs, and (5) deferred tax assets.

which items must be individually disclosed if the amounts 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. -DD&A. - 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 DD&A.

How is operating profits/losses calculated for each segment?

revenues less (1) directly traceable costs and (2) reasonably allocated costs.

determined to be a reportable segment in the current year but not in the prior year

segment data for prior periods presented should be restated to reflect the newly reportable segment as a separate segment. (so that FS may be compared)

determined to be a reportable segment in the prior year but not in the current year

segment may still report segment separately if management judges the segment to have continuing significance

in general, for segment reporting, what should be disclosed?

segment profit or loss, segment assets, and certain related items BUT not required to report on segment cash flows. IFRS only: disclosure on segment liabilities IF such a measure is regularly provided to the chief operating decision maker.

management approach method

the definition of a segment depends on how management uses information (e.g. report results by product and service lines and by geographic lines).

when are income and expenses allocated to a segment?

they are included in the determination of segment profit or losses if reporting to the chief operating decision maker.

what is the objective of segment reporting?

to provide information on business activities and the economic environment of a company to help users of the financial statements (1) better understand the entity performance, (2) better assess its prospects for future net cash flows, and (3) make more informed judgments about the entity as a whole.

a segment is considered significant and therefore disclosure is required if it meets one or more of the following quantitative thresholds:

1. 10% "size" test. 2. 75% "reporting sufficiency" test. 3. "all other segments" category.

10% "size" test

1. Revenue. - includes both sales to external customers and intersegment sales/transfers. - excludes interest income on advances and loans to other segments. 2. Reported profit or loss. - calculated by using the absolute amount of the segment's reporting profit/loss 3. Assets. - those assets included in the measure of the segment's assets that are reviewed by the "chief operating decision maker". General rule for all of the above: Segment must be greater than or equal to 10% of the combined amount of all segments together.

The accounting principles used for segment reporting may not be the same as those used to prepare the consolidated financial statements. Some principles are not expected to apply on a segment basis; therefore, the following information must be disclosed:

1. basis of accounting for any internal transactions. 2. nature of any differences between measurements of reportable segments' profits or losses and the entity's consolidated income. 3. nature of any differences between measurements of the reportable segments' assets and the entity's consolidated assets, if not apparent form the reconciliation provided. 4. nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss. 5. nature and effect of any asymmetrical allocations to segments.

what is not considered an operating segment?

1. corporate headquarters or functional departments (may not earn revenues or may earn revenues that are only incidental). 2. Pension plan and other post-retirement benefit plans.

what is an operating segment?

1. engages in business activities from which it may earn revenues and incur expenses (including inter-company). 2. its 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. 3. its discrete financial information is available.

which items are normally excluded from segment profit (or losses)?

1. general corporate revenues and expenses. 2. interest expense (unless from a financial institution). 3. income taxes. 4. equity in earnings and losses of an unconsolidated subsidiary. 5. gains or losses from discontinued operations. 6. minority interest. (basically, EBIT and excluding corporate items, equity in earnings and losses of an unconsilidated subsidiary, G/L from discontinued oeprations (which can be remembered by knowing that discontinued ops are after EBIT), and exclude minority interest)

operating segments that exhibit similar long-term financial performance may be aggregated into a single operating segment only if the segments have the same basic characteristics in each of the following areas:

1. nature of PRODUCTS & services. 2. nature of production PROCESSES. 3. type or class of CUSTOMERS for their products and services. 4. METHODS used TO DISTRIBUTE their products or PROVIDE their services. 5. nature of REGULATORY environment (banking, insurance, public utilities)

in order to conform with US GAAP and IFRS, financial statements for PUBLIC business entities must report information about a company's:

1. operating segment (annual and interim). 2. Products and services. 3. Geographic areas. 4. Major customers. "Operating segments have many products and services in various geographical areas which then distribute to the major customers"

what are the factors used to identify an entity's reportable segments?

1. products and services. 2. geographic areas. 3. regulatory environments.

what reconciliations should be made from segment information to consolidated information?

1. revenues. 2. profits or losses before income taxes taxes, discontinued operations, and the cumulative effects of changes in accounting principles. 3. assets. 4. liabilities (IFRS only). 5. every other significant items of information disclosed.

required disclosures for public entities, regardless of the number of reportable segments

From external customers: 1. products and services (unless impracticable to do so (which if the case, then disclose this fact)). 2. geographic area: (1) Revenues: (attributable to... domicile country, all foreign countries if material, individual foreign countries if material, basis for attributing revenues from external customers to individual countries); (2) Long-lived assets: (located in... domicile country, all foreign countries in total in which entity holds assets, individual foreign countries if material) 3. major customers: an entity that generates 10% or more of its revenues from sales to a single customer must disclose that fact, the total amount of revenues from each such customer, and identity of the segment or segments reporting the revenues. However, the identity of the major customer need NOT be disclosed.