Conceptual Questions for Chapter 13

PURPOSE OF SEGMENT REPORTING

disaggregated financial data for different parts of business

management approach in segment reporting?

segments based on how the CODM assesses performance

What qualifies as an operating segment? (3)

• revenues & expenses

• reviewed by the CODM

• discrete financial information available

REPORTABLE SEGMENT (10% RULES)

• Revenue ≥ 10% of total

• Profit/Loss ≥ 10% of larger of P&L

• Assets ≥ 10% of total

RPA!

75% TEST

Reportable segments must cover at least 75% of total external revenue, if not add more based on % of revenue

MAJOR CUSTOMER RULE

If a single customer accounts for 10%+ of revenue, it must be disclosed

OPERATING vs REPORTABLE SEGMENT

• Operating segment: Internal component reviewed by management

• Reportable segment: Operating segment that meets size thresholds (10% tests) and must be disclosed

When can operating segments be combined?

Segments can be aggregated if they have similar economic characteristics, including:

• Products/services

• Production processes

• Customers

• Distribution methods

• Regulatory environment

👉 Concept: Combine only if they are truly similar

WHAT MUST BE DISCLOSED FOR EACH SEGMENT

• Revenue

• Profit or loss

• Assets

+

• Basis of measurement

• Reconciliation to consolidated totals

INTERIM REPORTING

Financial reporting for periods less than one year

What is the difference between the integral and discrete approaches to interim reporting? what does gaap use?

• Discrete: Each period stands alone

• Integral (GAAP): Each interim period is part of the full year

👉 GAAP uses the integral approach

INTERIM REPORTING ISSUES (3)

• Seasonality affects results

• More estimates are required

• Difficulty matching revenues and expenses

when is interim reporting required?

when it is public company (10-Q)

if a company owns less than 100% of company, do you still eliminate all intercompany profit?

yes, always