Module 5: Segment Reporting

Intercompany Transactions

*Not Eliminated for Reporting* Transactions between segements of entity are not eliminated in consoidated between parent and subsidiaries. -Consoidation we eliminate but segemnts we do not

Required Disclosures for Public Entities

Must report: -Operating segments (annual and interim) -Products and Services -Geographic Areas -Major customers

Entity Wide Disclosures

*Products and Services* -Revenue from external customers for each product or service or each group of similar products/services must be disclosed unless impracticable to do so *Geographic Areas* -Revenues: attributable to entities domicile country, foreign countries if material, individual foreign countries is material, basis for attribution revenue from external customers to individual countries. -Long Lived Assets: located in domicile country, located in all foreign countries in total which entity holds assets, located in individual foreign countries if amount material *Major Customers* Generals 10% or more revenue from sale to a single customer must disclose that fact, total amount of revenues and identity of segment or segment reporting the revenue. Identity of major customer need not be disclosed.

Not Every Component is Operating Segment

-Corporate Headquarters Not an Operating Segment: corporate HQ or certain functional department may not earn revenue or may earn revenue that are only incidental to activities of entity and would not be operating -Pension Plan Not Operating Segment: other post retirement benefit plans

Income and Expense Allocation

Allocated based on how management determined. -Not allocated to a segment unless they are included in the determination of segment profit or loss reported to the chief operating decision maker. Items Excluded from Segment Profit or Loss: -General Corp Revenues -General Corp Expenses -Interest Expense -Income tax -Equity in earnings and losses of unconsoidated sub -G/L from discontinued operations -Minority Interest - NCI

Reportable Segment Disclosures

Basis of organization - products and services, geographic areas, regulatory environments should be disclosed. Also disclose whether any operating segments have been aggregated. *Products and Services* Types for which segment derives revenues *Profit or Loss* Individually disclosed if amounts included in calc of segment P/L reviewed by chief operating decision maker -Revenues from external customers -Revenues from transactions w internal operating segments -Interest revenue -Interest expense -Depreciation -Equity in net income -Income tax expense or benefit -Significant noncash items *Assets* Amount of investment in equity method investee Total expenditures for additions to long lived assets, LT customer relationships, mortgage and other servicing rights, deferred policy acquisition cost. deferred tax assets *Liabilities* IFRS ONLY Measure of liabilities for each reportable segment *Measurement Criteria* Accounting principles used for segment reporting may not be same used to prepare consolidated statements. -Basis of accounting for internal transactions -Nature of any differences between measurement of reportable segment profits or losses/ assets and entity consolidated income - reconcile differences *Reconciliation* -Total of reportable segments revenues to entity consolidated revenue -Total of reportable segments measure of profit or loss to consolidated income before income taxes, discontinued operations, and cumulative effects of changes in accounting principles -Total reportable segment assets to consolidated assets -Total of reportable segment liabilities to entity consolidated liabilities IFRS ONLY -Total of reportable segments amount for every other significant item

Operating Segments

Component of entity that has all of following characteristics: 1. Engages in business activities from which it earns revenues and incurs expenses 2. Operating results are regularly reviewed by entity's chief operating decision maker to make decisions about resources to be allocated to segment and assess performance 3. Discrete financial information is available - Traceable cash flows

Accounting Principles

FS information is essentially a disaggregation of entity's regular FS. Accounting principles used in preparing FS should be used for segment information -Reconciled to relate aggregarte amounts in FS

Segment Reporting

Objective is to provide information on the business activities and economic environment of company to help users of FS 1. Better understand entity performance 2. Better assess its prospects for future net cash flow 3. Make more informed judgments about entity as whole -Required to disclose segment profit or loss, segment assets, and certain related items, but not required to report segment cash flow IFRS: requires the disclosure of segment liabilities if measure is regularly provided to chief operating decision maker GAAP: no requirement to disclose segment liabilities -Applies to public companies only. Does not apply to NFP, nonpublic, or separate FS of members of consolidated group - private will do only if owners want to

Reportable Segments

Operating segments of entity that meet the criteria for separate reporting Exhibit similar LT financial performance may be aggregated into single operating segment only if segment have same basic characteristics for each: -Nature of products and services -Nature of production processes -Type of class of customer for product/service -Method used to distribute products or provide service -Natureal of regulatory environment

Segment Profit (Loss)

Revenues Less: Directly Traceable Costs - for that segments: internal and external Less: Reasonably allocated costs - by agreement CODM = Operating Profit or Loss (EBIT)

Quantitative Thresholds

Segment considered significant and therefore disclosure required if meets one of more of following thresholds *10 Percent Size Test* Materiality, if on segment is > 90% = no segment reporting needed. 10% of revenue, P/L, assets: Need to report -Revenue: Including both sales to external customer and intersegment sales or transfers (exclude interest income on advances and loans to other segments) is 10% or more of combined revenue, internal and external, of all operating segments -Reported Profit or Loss: Income before taxes. The absolute amount of segments reported profit or loss is 10% more of greater of: 1. Combined reported profit of all segments that did not report a loss 2. Combined reported loss of all segments that did report a loss -Assets: Identifiable assets are 10% or more of combined assets of all operating segments. Assets included in measure of segment assets that are reviewed by chief operating decision maker *75% Reporting Sufficiency Test* Total breakout exceeds 75% -If the total of external revenues reported by operating segments constitutes less than 75% of external revenue, additional operating segments need to be identified as reportable segments, even if they do not meet the 10% test. Until 75% is met. Limit to a number of segments is 10. *All Other Segments Category* Not 10%, already showing over 75% -Info about other business activities and operating segements that are not reportable based on the above criteria should be combined and disclosed in an all other segemnts category

Comparative Reporting

Segment deemed to be reportable in the immediatly preceding period but that does not the criteria for reportability in current period may continuye to be reported separately if management judges the segment to have continuying significant. -Segment last period, bot this period, your choice. -Operating segemnt deemed not to be reportable in prior period meets in current period, segment datea for prior period presented should be restated to relfect the newly reportable segement