Segment Reporting
Segment reporting requires public entities to disclose financial information about operating segments that meet quantitative thresholds, enabling users to evaluate the nature and financial effects of business activities.
Explanation
An operating segment is a component of an entity that engages in business activities, has discrete financial information, and is regularly reviewed by the chief operating decision maker (CODM). Reportable segments meet one of three quantitative thresholds: revenue, profit/loss, or assets equal to 10% or more of the combined totals.
Required disclosures include segment revenue, profit/loss, assets, and reconciliations to consolidated totals. At least 75% of total external revenue must be attributable to reportable segments. Entity-wide disclosures about products/services, geographic areas, and major customers are also required regardless of segment structure.
Key Points
- •Operating segments identified by CODM review structure
- •10% thresholds for revenue, profit/loss, or assets
- •75% of external revenue must be covered by reportable segments
- •Entity-wide disclosures required for products, geographies, major customers
Exam Tip
Know the three 10% quantitative tests and the 75% overall test. Also understand that segment reporting follows the management approach — how management views the business.
Frequently Asked Questions
Related Topics
Income Statement
The income statement reports an entity's revenues, expenses, gains, and losses over a period of time, resulting in net income or net loss.
Balance Sheet (Statement of Financial Position)
The balance sheet reports an entity's assets, liabilities, and equity at a specific point in time, following the fundamental accounting equation: Assets = Liabilities + Equity.
Consolidations
Consolidation is the process of combining the financial statements of a parent company and its subsidiaries into a single set of financial statements, eliminating intercompany transactions and balances.
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