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22 Cards in this Set

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Segment Reporting

General (3)
Objective is to provide information on the business activities and the environment of a company to help users of the F/S's:

1. Better understand the enterprise's performance
2. Better assess its prospects for future net CF's
3. Make more informed judgments about the enterprise as a whole*
*In general, an enterprise is required to disclose segment profit or loss, segment assets, and certain related items, but not required to report segment CF

Segment Reporting
-IFRS requires disclosure of segment liabilities if such a measure is regularly provided to the chief operating decision maker.

-U.S. GAAP doesn't require the disclosure of segment liabilities
Segment Reporting

Required Disclosures for all Public Enterprises
F/S's 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
Segment Reporting

Accounting Principles
Use same accounting principles as main F/S's. Segment information presented must be reconciled to the related aggregate amounts in the F/S's.
Segment Reporting

Inter-company Transactions
Inter-company transactions not eliminated for reporting*
*Unlike how they are eliminated in consolidation between the parent company and subsidiaries
Segment Reporting

-Segment reporting applies to public companies only*
*Doesn't apply to not-for-profit organizations, nonpublic companies, or separate F/S's of members of a consolidated group if both the separate company statements and the consolidated or combined F/S's are included in the same financial report.
Operating Segments-

Definition (3)
An operating segment is a component of an enterprise:

1. That engages in business activities from which it may earn revenue and incur expenses*

2. Whose operating results are regularly reviewed by the enterprise's "Chief Operating Decision Maker"

3. For which discrete (traceable cash flow) financial information is available**
*including revenues and expenses relating to transactions w/ other components of the same enterprise

**The definition of a segment depends on how management uses information, which is called the management approach method (Ex: management may report results both by product and service lines and by geographical lines.)
Operating Segments

Non-Operating Segments
1. Corporate Headquarters: or certain functional departments, may not earn revenues or revenues that are only incidental to the activities of the enterprise and would, therefore, not be operating segments.

2. Pension plans and other post-retirement benefit plans are not considered to be operating segments.
Operating Segments

Reportable Segment
Are operating segments of an enterprise that meet the criteria for separate reporting.

Those operating segments that exhibit similar long-term financial performance may be aggregated into a single operating segment if:
1. Aggregation is consistent w/ the objectives and principles of segment reporting
2. The segments have similar economic characteristics
3. The segments are similar in:

-The nature of products and services
-The nature of the production process
-The type or class of customer
-The methods used to distribute products or provide services
-The nature of the regulatory environment (if applicable)
Operating Segments

Quantitative Thresholds for Reportable Segments (Materiality Tests)
1. 10% "Size" Test (must meet one)

-Revenue: segments reported revenue (including inter-segment sales, excluding interest income on advances and loans to other segments) is 10% or more of the combined revenue, internal and external, of all operating segments.

-Reported Profit or Loss: segment's reported profit/loss is 10% or more of the greater, in absolute amount, 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: segment's assets are 10% or more of the combined assets of all operating segments.
2. 75% "Reporting Sufficiency" Test: if the total (consolidated) revenue reported by operating segments constitutes less than 75% of external (consolidated) revenue, additional segments need to be identified as reportable, even if they don't meet the 10% tests, until at least 75% of external revenue is included in reportable segments.

-The practical limit to the number of segments is 10, which is not a precise limit.
Operating Segments

"All Other Segments" Category
Information about other business activities and operating segments that are not reportable based on the above criteria should be combined and disclosed in an "all other segments" category.
Operating Segments

Comparative Reporting
-An operating segment that was deemed to be reportable in the immediately preceding period but that does not meet the criteria for report ability in the current period may continue to be reported separately if management judges the segment to have continuing significance.
-If an operating segment that was not deemed to be reportable in the prior period meets the criteria for report ability in the current period, segment data for prior periods presented should be restated to reflect the newly reportable segment as a separate segment.
Segment Profit (or Loss) Defined

1. Revenues*
2. Less: Directly traceable costs
3. Less: Reasonably allocated costs**
4. = ***Operating profit (or loss) for that segment
*For that segment, internal and external
**By CFO
***Earnings before interest & taxes (EBIT)
Segment Profit (or Loss) Defined

Items Normally Excluded from Segment Profit (or Loss) (8)
1. General corporate revenues
2. General corporate expenses
3. Interest expense*
4. Income taxes
5. Equity in earnings and losses of an unconsolidated subsidiary**
6. Gains/Losses from discontinued operations
7. Minority interest
*Except for financial institutions
**Under the equity method
Segment Profit (or Loss) Defined

Income and Expense Allocation
Are not allocated to a segment unless they are included in the determination of segment profit or loss reported to the "Chief Operating Decision Maker."
Reportable Segment Disclosures

Identifying Factors, Products and Services, Profit or Loss
1. Identifying Factors: used to identify the enterprise's reportable segments, including the basis of organization*, should be disclosed.

2. Products and Services (types): from which the reportable segment derives its revenues must be disclosed

3. Profit or Loss: individual items must be disclosed if the amounts are included in the calculation of segment profit/loss reviewed by the chief operating decision maker (10)**
*Products and services, geographic areas, regulatory environments.

**1. Revenues from external customers
2. Revenues from transactions w/ other internal operating segments
3. Interest Revenue
4. Interest Expense
5. Depreciation, depletion, and amortization
6. Unusual items, including unusual events and transactions
7. Equity in NI of investees accounted for by the equity method
8. Income tax expense/benefit
9. Extraordinary items (GAAP)
10. Significant non-cash items other than depreciation, depletion, and amortization expense
Reportable Segment Disclosures

Assets, Liabilities
1. The amount of investment in equity method investees
2. Total expenditures for (1) additions to long-lived assets*, (2) long-term customer relationships of a financial institution, (3) mortgage and other servicing rights, (4) deferred policy acquisition rights, (5) deferred tax assets

Liabilities (IFRS only)- an entity discloses a measure of liabilities for each reportable segment is such an amount is regularly provided to the chief operating decision maker
*Other than financial instruments
Reportable Segment Disclosures

Measurement Criteria (5)
1. Basis of accounting for any internal transactions
2. Nature of any differences between measurements of the reportable segments' profits/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
4. Nature of any changes from prior periods in the measurement methods used to determine reported segment profit/loss
5. Nature and effect of any asymmetrical allocations to segments
Reportable Segment Disclosures

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

Products and Services
*-Revenues from external customers for each product/service or each group of similar products/services must be disclosed unless it is impracticable to do so.
*Apply to enterprises regardless of the number of reportable segments. Required for all public companies
Enterprise-Wide Disclosures

Geographic Areas (2)
*-Revenues: disclose revenues from external customers that are

1. Attributable to the enterprise's domicile country
2. Attributed to all foreign countries if the amount is material
3. Attributed to individual foreign countries if the amount is material
4. The basis for attributing revenues from external customers to individual countries

-Long-Lived Assets: disclose the long-lived assets that are

1. Located in the enterprise's domicile country
2. Located in all foreign countries in total in which the enterprise holds assets
3. Located in individual foreign countries if the amount is material
*Apply to enterprises regardless of the number of reportable segments. Required for all public companies
Enterprise-Wide Disclosures

Major Customers
*An enterprise that generates 10% or more of its revenue from sales to a single customer must disclose that fact, the amount of revenue from each such customer, and the identity of the segment(s) reporting the revenue. The identity of the major customer need not be disclosed.
*Apply to enterprises regardless of the number of reportable segments. Required for all public companies