ACYFARP: Operating Segments

Core Principle of Segment Reporting

A company must disclose information for the users of financial statements to be able to analyze the nature and financial effects or implications of the business operations that the company engages in, as well as the economic environment in which it operates.

Segment Reporting

Is the disclosure of financial information regarding a company's products and services, as well as the geographic locations in which it operates. Such disclosure allows investors and users to better assess and analyze the economic activities of the company, resulting to a better knowledge of the company's overall performance.

Scope of PFRS 8

The standard applies to an entity's separate or individual financial statements, as well as a group's consolidated financial statements with a parent. Whose debt or equity securities are traded in a public market, that has filed or is in the process of filing consolidated financial statements with SEC to issue any type of instruments in a public market.

True

(True or False) If a financial report contains both the parent's consolidated financial statements and the parent's separate financial statements, segment information is required only in the consolidated financial statements.

Operating Segment

Is a component of an entity:

a. That engages in business activities from which it may generate revenue and incur expenses, including revenue and expenses relating to transactions with other components of the same entity.

Operating Segment

Is a component of an entity:

b. Whose operating results are reviewed on a regular basis by the entity's chief operating decision maker to make resource allocation decisions and assess the segment's performance. And for which discrete financial information is available.

Operating Segment

Can be segregated of as a distinct component of an entity that is engaged in revenue-generating and expense-generating business activities.

Chief Operation Decision Maker

Refers to a function rather than a specific title for a manager. This function is responsible for "allocating resources to the segments and evaluating the performance".

True

(True or False) Depending on who inside the firm is responsible for allocating resources and evaluating the performance of operational segments, the chief operating decision maker may be the entity's chief executive officer or a group of executive directors.

True

(True or False) The management approach shall be used in identifying operating segments.

Operating Segments

Are identified based on the entity's components that are regarded relevant for internal reporting.

True

(True or False) A component of entity that sells primarily or exclusively to other operating segments is included in the definition of an operating segment if the entity is operated in this manner.

Determining Reportable Segments

An entity shall report information about an operating segment that meets any of the following quantitative thresholds:

a. 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.

Determining Reportable Segments

An entity shall report information about an operating segment that meets any of the following quantitative thresholds:

b. The absolute amount of profit or loss of the segment is 10% or more of the greater in absolute amount of:

* Combined profit or all operating segments that reported a profit.

* Combined loss of all operating segments that reported a loss.

Determining Reportable Segments

An entity shall report information about an operating segment that meets any of the following quantitative thresholds:

c. The assets of the segment are 10% or more of the combined assets of all operating segments.

True

(True or False) If management believes that information about the segment would be relevant to financial statement users, operating segments that do not meet any of the quantitative thresholds may be considered reportable and separately disclosed on a voluntary basis.

Treatment of Absolute Profit or Loss

The profit must be combined, and the losses must be combined to determine which is greater between the two.

True

(True or False) All reportable segments shall be disclosed separately while those which do not meet the criterion may be combined for reporting purposes.

Overall Size Test - 75% Threshold

If the total external revenue of reportable segments is less than 75% of the entity's total external revenue, additional operating segments must be identified as reportable segments, even if they do not meet the 10% quantitative thresholds, until reportable segments account for at least 75% of the entity's external revenue.

Aggregation of Segments

Two or more operating segments can be combined into a single operating segment if the segments have similar economic features, and the segments share a majority of the following aggregation criteria:

a. Nature of product or service

b. Nature of production process

c. Type or class of customers

d. Marketing or distribution method

e. The nature of the regulatory environment (i.e., banking, insurance or public utility).

True

(True or False) Two or more operating segments may be combined or aggregated into one reportable segment to achieve the 75% threshold. However, the operating segments that will be aggregated must share a majority of the five aggregation criteria cited above and have similar economic features.

Limit to the Number of Segments

The practical limit is 10.

True

(True or False) If the management believes that an operating segment that was identified as a reportable segment in the previous period is still important, information regarding the segment must be reported separately in the current period, even if it no longer fulfills any of the 10% substantive reportability standards.

True

(True or False) If a reportable segment is identified in the current period based on the 10% quantitative thresholds, segment data from previous periods presented for comparative purposes must be restated to reflect the newly reportable segment, even if that segment did not meet any of the quantitative thresholds in the prior period.

True

(True or False) Prior period information, on the other hand, shall not be restated if the necessary information is not accessible and the cost of developing it would be excessive.

Entity-Wide Disclosures

An entity shall disclose information about the following:

a. Information about products and services.

b. Information about geographical areas.

c. Information about major customers.

Revenue from Products and Services

An entity is required to disclose the revenue from external customers for each product and service.

Revenue from Geographical Areas

The following geographical information shall be disclosed by an entity:

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.

Major Customer

Is an external customer who contributes 10% or more of an entity's external revenue. The entity is required to disclose the following:

a. The fact of reliance on major customers.

b. The total amount of revenue from all major customers.

c. The segments reporting the revenue.

True

(True or False) The entity is not required to reveal or disclose the identity of its major customers, or the amount of revenue reported by each segment from that customer.

True

(True or False) The total external revenue attributable to reportable operating segments must be at least 75% of the total entity external revenue.

75% of the External Revenue

The minimum amount of external revenue to be disclosed by reportable segments.

General Corporate Expenses

Are not allocated to operating segments as a measure of profit or loss.