FAR 2, M4 Segment Reporting
RULE: To be significant enough to report on, a segment must be at least 10% of... 1. Combined revenues (whether intersegment or affiliated customers), or 2. Operating profit (of all segments not having an operating loss), or 3. Identifiable assets.
A segment needs to be reported if what 3 criteria's are met?
- Sales to other segments Rule: Equity in net income of another company, general corporate expenses, interest, income tax expenses, and gains or losses on discontinued operations are all NOT included in the determination of segment profit reported to the "Chief Operating Decision Maker".
In financial reporting of segment data, which items are always used in determining a segment's operating income?
Operating segments (annual and interim) Products and services Geographic areas Major customers (=>10% of revenue non-eliminated)
What are the required disclosures for all public entities?
Required - Segment profit or loss - Segment assets Not-required Segment cash flow
What disclosures are required and NOT required for segment reporting?
It applies to Sales to Unaffiliated Customers If the total of external (consolidated) revenue reported by operating segments that were identified using the 10% test, constitutes less than 75% of the external (consolidated) revenue, additional operating segments need to be identified as reportable segments, even if they do not meet the above 3 rules of the 10% test, until at least 75% of external (consolidated) revenue is included in reportable segments. The practical limit to the number of segments is 10, which is not a precise limit but is reasonable so as not to overwhelm the financial statement users with detailed information. All Other Segments category - not reportable based on below criteria, should be combined and disclosed in an "all other segments" category. Not 10% Already showing over 75%
What does the 75% test apply to and what is it?
75% of - Total external Sales and Revenues To make sure sum of the reported segments (10% threshold met entities) at least add up to 75% of total external sales from entire company. If not add the next highest segment. The remaining can be combined and reported as "All Other Segments"
What is the threshold % for the "reporting sufficiency" test?
10% of - Total revenue before eliminations (include interco) - 10% of profit or loss totals (separate profit co. and loss co.) - 10% of identifiable assets
What is the threshold % for the reportable segment "size" test?
Publicly-traded enterprises
What type of entity is required to report business segments?
Chief Operating Decision Maker (CODM) This title will also regularly review operating results to make decision about resources to be allocated to the segment and assess its performance.
Who makes the decision of which non-directly traceable costs are allocated to various segments?
