This document discusses key concepts relating to operating segments for financial reporting purposes. It defines an operating segment as a component of an entity that engages in business activities to earn revenue and expenses, and whose operating results are regularly reviewed by the chief operating decision maker. Reportable operating segments meet certain quantitative thresholds for revenue, profit/loss, or assets. The document outlines the information that must be disclosed for each reportable operating segment, such as general segment information, profit/loss details, segment assets and liabilities. It also discusses additional entity-wide disclosures required if not provided as part of segment information.
This document discusses key concepts relating to operating segments for financial reporting purposes. It defines an operating segment as a component of an entity that engages in business activities to earn revenue and expenses, and whose operating results are regularly reviewed by the chief operating decision maker. Reportable operating segments meet certain quantitative thresholds for revenue, profit/loss, or assets. The document outlines the information that must be disclosed for each reportable operating segment, such as general segment information, profit/loss details, segment assets and liabilities. It also discusses additional entity-wide disclosures required if not provided as part of segment information.
This document discusses key concepts relating to operating segments for financial reporting purposes. It defines an operating segment as a component of an entity that engages in business activities to earn revenue and expenses, and whose operating results are regularly reviewed by the chief operating decision maker. Reportable operating segments meet certain quantitative thresholds for revenue, profit/loss, or assets. The document outlines the information that must be disclosed for each reportable operating segment, such as general segment information, profit/loss details, segment assets and liabilities. It also discusses additional entity-wide disclosures required if not provided as part of segment information.
This document discusses key concepts relating to operating segments for financial reporting purposes. It defines an operating segment as a component of an entity that engages in business activities to earn revenue and expenses, and whose operating results are regularly reviewed by the chief operating decision maker. Reportable operating segments meet certain quantitative thresholds for revenue, profit/loss, or assets. The document outlines the information that must be disclosed for each reportable operating segment, such as general segment information, profit/loss details, segment assets and liabilities. It also discusses additional entity-wide disclosures required if not provided as part of segment information.
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OPERATING
SEGMENTS ACCA102 - Conceptual Framework and Accounting Standards Objectives: ■ Define the core principle of segment reporting ■ Describe the concept of an operating segment ■ Explain the criteria for the recognition of reportable operating segment ■ Enumerate and describe the information required to be disclosed for a reportable operating segment Segment Reporting – Core principle “An entity shall disclose information to enable users of financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates.” Segment Reporting – Core principle In other words, segment reporting is the disclosure of certain financial information about the products and services an entity produces and the geographical areas in which an entity operates.
The purpose of such disclosure:
To enable investors and users make better assessment of each
business activity leading to the understanding of the performance of the entity as whole. Scope of PFRS 8 PFRS 8 shall apply to the separate or individual financial statements of an entity, and to the consolidated financial statements of a group with a parent:
a. Whose debt or equity instruments are traded in a public market
b. That files or is in the process of filing the consolidated financial statements with a securities commission or other regulatory organization for the purpose of issuing any class of instruments in a public market.
! If financial report contains BOTH the consolidated financial
statement of parent and the parent’s separate financial statements, segment information is required ONLY IN THE CONSOLIDATED FINANCIAL STATEMENTS. OPERATING is a component of an entity:
SEGMENT a. That engages in business activities from which it may earn revenue and incur expenses, including revenue and expenses relating to transactions with other components of the same entity.
b. Whose 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.
c. And for which discrete financial information is available.
OPERATING SEGMENT - Is a distinguishable component of an entity that is engaged in business activities which generate revenue and incur expenses
Moreover, to be classified as an operating segment, separate financial
information must be available about the segment and its operating results shall be regularly reviewed by a chief operating decision maker. OPERATING SEGMENT > An operating segment may engage in business activities for which it has yet to earn revenue. For example, start-up operations may be operating segments before earning revenue.
> Not every part of an entity is necessarily an operating segment or part
of an operating segment. For example, corporate headquarters or some functional departments that may not earn revenue or may even revenue that is incidental only to the activities of the entity would not be operating segments. Chief operating decision maker Not necessarily a manager with a specific title
- Allocates resources to the segments
- Assess their performance
The chief operating decision maker may be the entity’s CEO, COO, or a group of executive directors depending on who within the organization is responsible for the allocation of resources and assessing the performance of operating segments. Identifying operating segments
The management approach is used in identifying operating segments.
It means that the operating segments are identified on the basis of internal reports about of an entity that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance.
! Operating segment are identified based on the
components of the entity that are considered to be important for internal management reporting purposes. Reportable operating segments An entity shall report information about an operating segment that meets ANY of the following quantitative thresholds:
1. The segment revenue, including both sales to external customers and
intersegment sales or transfers, is 10% or more of the combined revenue, internal and external, of all operating segments. 2. The absolute amount of profit or loss of the segment is 10% or more of the greater in absolute amount of: a. Combined profit of all operating segments that reported a profit b. Combined loss of all operating segments that reported a loss. Reportable operating segments 3. The assets of the segment are 10% or more of the combined assets of all operating segments.
Operating segments that do not meet any of the quantitative thresholds may be considered reportable and separately disclosed on a voluntary basis if the management believes that information about the segment would be useful to the users of the financial statements. Illustration Revenue Profit (loss) Assets Segment A16,000,000 1,700,000 25,000,000 Segment B13,000,000 500,000 11,000,000 Segment C 6,000,000 (1,000,000) 3,000,000 Segment D 3,000,000 200,000 2,000,000 Segment E 2,000,000 ( 100,000) 4,000,000 40,000,000 1,300,000 45,000,000
A, B, C Based on revenue: _______________
A, B Based on segment assets: ________________ Illustration Revenue Profit (loss) Assets Segment A 16,000,000 1,700,000 25,000,000 Segment B 13,000,000 500,000 11,000,000 Segment C 6,000,000 (1,000,000) 3,000,000 Segment D 3,000,000 200,000 2,000,000 Segment E 2,000,000 ( 100,000) 4,000,000 40,000,000 1,300,000 45,000,000 Solution: Profit Loss Segment A 1,700,000 In conclusion, A, B, and C are Segment B 500,000 identified as reportable Segment C 1,000,000 Segment D 200,000 segment. Segment E 100,000 2,400,000 1,100,000
10% of 2,400,000 is 240,000.
A, B, C Based on 10% of profit or loss: _______________ Overall size test – 75% threshold If the total external revenue of reportable operating segments constitutes less than 75% of the entity external revenue, additional operating segments shall be identified as reportable segments even if they do not meet the 10% quantitative thresholds until at least 75% of the entity external revenue is included in reportable segments. Aggregation of segments ■ Two or more operating segments may be aggregated into a “single operating segment” if the segments have similar economic characteristics and the segments share a majority of the following five aggregation criteria:
a) Nature of product or service
b) Nature of production process c) Type or class of customers d) Marketing method or the method used to distribute the product e) The nature of the regulatory environment, for example, banking, insurance or public utility Information to be disclosed for each segment An entity shall disclose the following for each reportable operating segment:
1) General information about the operating segment.
2) Information about profit or loss, including specified revenue and expenses included in the measure of profit or loss 3) Information about segment assets and segment liabilities and the basis of measurement. 4) Reconciliations of the totals of segment revenue, segment profit or loss, segment assets, segment liabilities and other material segment items to corresponding items in the entity’s financial statements. Disclosure about general information An entity shall disclose the following general information about an operating segment:
a) Factors used to identify the reportable segments
b) Type of products and services from which each reportable
segment derives revenue. Disclosure or profit or loss, assets and liabilities
An entity shall disclose a measure or profit or loss
under all circumstances.
However, an entity shall disclose a measure of total assets and total
liabilities for each reportable segment if such an amount is regularly provided to the chief operating decision maker. Entity-wide disclosures - are additional information that is required to be disclosed by all entities if such information is not provided as part of the reportable segment information.
An entity shall disclose information about the following:
A. Information about the products and services B. Information about geographical areas C. Information about major customers A. Revenue from products and services An entity shall disclose the revenue from external customers for each product and service.
B. Revenue and assets from geographical areas
An entity shall disclose the following geographical information:
a. Revenue from external customers in the entity’s country of domicile, and in
all foreign operations in total. b. Separate disclosure of material revenue from external customers in an individual foreign country. Disclosure about major customer A major customer is defined as a single external customer providing revenue which amounts to 10% or more of an entity’s external revenue.
> Disclose the fact or reliance on major customers, the total
amount of revenue from major customers and the identity of the segment or segments reporting the revenue.
> Not required to disclose the identity of the major customer
or the amount of revenue that each segment reports from that customer. Questions ? === END ===
