FAR Chapter 1: Segment Reporting

Who requires the disclosure of segment liabilities if such a measure is regularly provided to the chief operating decision maker?

IFRS

What is the scope of segment reporting?

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

Segment profit (or loss) formula:

Revenues Less: Directly traceable cost Less: Reasonably allocated costs =Operating Profit (or loss)

Enterprise-wide disclosure: 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.

What is the object of Segment Reporting?

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

Explain Reportable segment disclosure: Products & Services

Types of products and services from w/c segment derives its revenues.

Explain Reportable segment disclosure: Liabilities (IFRS only)

Under IFRS, an entity discloses a measure of liabilities for each reportable segment if such an amount is regularly provided to the chief operating decision maker.

Definition of segment:

depends on how management uses informatio, which is called the management approach method. For example, management may report results both by product and service lines and by geographical lines.

What is enterprise-wide disclosure

The following disclosures apply to enterprises regardless of the number of reportable segments. They are required disclosures for all public enterprises.

Does Segment information use the same accounting principles used in preparation of the financial statement?

YES Segment information use the same accounting principles as Main Financial Statements.

What if an operating segment that was not deemed to be reportable in the prior period meets the criteria for reportability in the current period?

Segment data for prior periods presented should be restated to reflect the newly reportable segment as a separate segment.

Enterprise-wide disclosure: Major Customer

An enterprise 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 major customer need not be disclosed.

Definition of Operating Segment

An operating segment is a component of an enterprise: 1. That engages in business activities for which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same enterprise). 2. Whose operating results are regularly reviewed by the enterprise's "Chief Operating Decision Maker" to make decisions about resources to be allocated to the segment and asses its performance, and 3. for which discrete financial information is available. Traceable cash flow.

Explain Reportable segment disclosure: Profit or Loss

Following items must be individually disclosed if the amounts are included in the calculation of segment profit or loss reviewed by CODM. 1. revenues from external customers 2. revenues from trans w/ other internal operating segments 3. interest revenue 4. interest expense 5. depreciation, depletion, and amortization 6. unusual items, including unusual events & trans 7. equity in net income of investees accounted for by the equity method 8. income tax expense or benefit 9. extraordinary items (GAAP) 10. significant noncash item other than depreciation, depetion, and amortization expense

Explain Reportable segment disclosure: Identifying factors

Identify enterprise's segments, including the bases of organization (e.g., products & srvc, geographic areas, regulatory environments) should be disclosed. Also disclose whether any operation segment have been aggregated.

Information about other business activities and operating segment that are not reportable base on the above criteria should be combined and disclosed where?

In an "all other segments" category.

When do income and expense gets allocated for a segment?

Income and expenses are not allocated to segment unless they are included in the determination of segment profit or loss reported to the "Chief Operating Decision Maker."

How do you report an operating segment that was deemed to be reportable in the immediately preceding period but that does not meet the criteria for reportability in the current period?

May continue to be reported separately if management judges the segment to have continuing significance.

Does GAAP require the disclosure of segment liabilities?

NO

Do the transaction between the segment of an enterprise gets eliminated as in consolidation between the parent company and subsidiaries?

NO it is important to remember that transaction between the segments of an enterprise are not eliminated as in consolidation between the parent company and subsidiaries.

Operating Segment may be aggregated into a single operating segment if:

Operating segment that exhibit similar long-term financial performance may be aggregated into a single segment if: 1. aggregation is consistent with the objective and principles of segment reporting. 2. the segment have similar economic characteristics, 3. the segment are similar in: a. The nature of the products and services b. The nature of the production processes c. The type of class of customer for their products and services d. The methods used to distribute their products or provide their services, and e. If applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.

What are reportable segment disclosures:

a. Identifying factors b. Products & Services c. Profit or Loss d. Assets e. Liabilities (IFRS only) f. Measurement Criteria g. Reconciliations

Items normally EXCLUDED from segment profit (or loss):

a. general corporate revenues b. general corporate expenses c. interest expense (except for financial institutions) d. income taxes e. equity in earnings or losses of an unconsolidated subsidiary (i.e., under the equity method) f. gains or losses from discontinued operations g. extraordinary items h. minority interest

Explain Reportable segment disclosure: Measurement Criteria

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

Example of NOT an operating segment:

1. Corporate Head quarters Not an operating Segment A corporate headquarters or certain functional departments may not earn revenues or may earn revenues that are only incidental to the activities of the enterprise and would, therefore, not be operating segments. 2. Pension Plan Not an Operating Segment An enterprise's pension and other post-retirement benefit plans are not considered to be operating segments.

In order to conform with GAAP and IFRS, financial statements for public business enterprises must report information about a company's:

1. Operating segments (annual and interim) 2. Products and services 3. Geographic areas 4. Major Customers

Explain Reportable segment disclosure: Reconciliations

1. The total of the reportable segments' revenues to the enterprise's consolidated revenues. 2. The total of the reportable segments' measures of profit or loss to the enterprise's consolidated income before income taxes, extraordinary items, discontinued operations, and the cumulative effects of changes in accounting principles. 3. The total of the reportable segments' assets to the enterprise's consolidated assets. 4. The total of the reportable segments' liabilities to the enterprise's consolidated liabilities (IFRS only). 5. The total of the reportable segments' amounts for every other significant item of information disclosed to the corresponding consolidated amount.

Quantitative Thresholds (MATERIALITY) for Reportable Segments

1. 10% "Size" Test (any ONE below) a. Revenue b. Reported Profit or Loss c. Assets 2. 75% "Reporting Sufficiency" Test If the total of external (consolidated) revenue reported by operating segments constitutes less than 75% of external (consolidated) revenue, additional operating segments need to be identified as reportable segments, even if they do not meet the above three test, until at least 75% of external (consolidated) revenue is included in the reportable segments. The practical limit to the number of segments is 10, which is not a precise limit.

Explain Reportable segment disclosure: Assets

1. the amount of investment in equity method investees 2. total expenditure for: a. additions to long-lived assets other than financial instruments. b. long-term customer relationship of a financial institution c. mortgage and other servicing rights d. deferred policy acquisition cost e. deferred tax assets

Enterprise-wide disclosure: Long-lived Assets

Disclose the long-lived assets that are: a. Located in the enterprise's domicile country b. Located in all foreign countries in total in which the enterprise holds assets. c. Located in individual foreign countries if the amount is material.

Enterprise-wide disclosure: Geographic Areas

Disclose the revenues from external customers that are: a. Attributable to the enterprise's domicile country b. Attributed to all foreign countries if the amount is material c. Attributed to all individual foreign countries if the amount is material. d. The basis for attributing revenues from external customers to individual countries.

An enterprise is required to disclose segment profit or loss, segment assets, and certain related items, but is not required to report....

segment of cash flow