FAR 1 - Segment Reporting

Question 1

Are intercompany transactions eliminated for segment reporting?

Answer 1

No, unlike consolidation intercompany transactions between segments are not eliminated.

Question 2

Define segments in both U.S. GAAP and IFRS?

Answer 2

1) Operating segments
2) Products and services
3) Geographic areas
4) Major customers

Question 3

Definition of operating segment?

Answer 3

Component of an enterprise:

1) Engages in business activities that may earn revenues and incur expenses
2) Whose operating results are reviewed by the enterprises’s “Chief Operating Decision Maker”
3) Discrete financial information is available - traceable cash flow

Question 4

What are not operating segments?

Answer 4

Corporate headquarters and pension plan

Question 5

How to determine if something is a reportable segment?

Answer 5

10% of Revenue (both external and internal revenues), Profit or Loss, and Assets - Any one of three
75% Reporting Sufficiency Test - keep adding reportable segments of EXTERNAL REVENUE (consolidated) revenue to get to 75%

Question 6

If you don’t qualify as a reportable segment what do you do?

Answer 6

Operating segments that are not reportable based on above criteria should be combined and disclosed in “all other segments” category.

Question 7

Segment Profit or Loss Formula?

Answer 7

Revenues (internal and external)
less: directly traceable costs
less: resonably allocated costs BY CFO
= operating profit or loss for that segment (Earning before tax)

Question 8

What is excluded in segment profit or loss?

Answer 8

1) Corporate revenues
2) Corporate expenses
3) interest expense
4) income taxes
5) equity in earnings and losses of an unconsolidated subsidiary
6) gains or losses from discontinued operations
7) Minority interest