Segment Reporting and Public Company Reporting Topics Flashcards
What is the objective of segment reporting?
to provide information on the business activities and the economic environment of a company to help users of the financial statements better understand the entity performance, better assess its prospects for future net cash flows, and make more informed judgments about the entity as a whole; in general, an entity is required to disclose segment profit/loss, segment assets, and certain related items, but it is not required to report segment cash flow
it is important to remember that transactions between the segments of an entity are not eliminated in a consolidation between the parent company and subsidiaries
segment reporting applies to public companies only
What is an operating segment?
it is a component of an entity that has all of the following characteristics:
it engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity)
its 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
its discrete financial information is available
the definition of a segment depends on how management uses information, which is called the management approach method; for example, management may report results both by product and service lines and by geographic lines
Quantitative thresholds for reportable segments
a segment is considered significant and therefore disclosure is required if it meets one or more of the following quantitative thresholds:
10% size test
revenue - the segment’s revenue, including both sales to external customers and intersegment sales or transfers (but excluding interest income on advances and loans to other segments), is 10% or more of the combined revenue, internal and external, of all operating segments
reported profit or loss - the absolute amount of the segment’s reported profit/loss is 10% or more of the greater, in absolute amount, of: 1) the combined reported profit of all operating segments that did not report a loss 2) the combined reported loss of all operating segments that did report a loss
assets - the segment’s identifiable assets are 10% or more of the combined assets of all operating segments; the assets of a segment are those assets included in the measure of the segment’s assets that are reviewed by the chief operating decision maker
75% reporting sufficiency test
if the total of external (consolidated) revenue reported by operating segments constitutes less than 75% of external (consolidated) revenue, additional operating segments need to be identified as reportable segments, even if they do not meet the above 3 tests, until at least 75% of external (consolidated) revenue is included in reportable segments; the practical limit to the number of segments is 10, which is not a precise limit but is reasonable so as not to overwhelm financial statement users with detailed information
Comparative reporting
an operating segment that was deemed to be reportable in the immediately preceding period but that does not meet the criteria for reportability in the current period may continue to be reported separately if management judges the segment to have continuing significance
if an operating segment that was not deemed to be reportable in the prior period meets the criteria for reportability in the current period, segment data for prior periods presented should be restated to reflect the newly reportable segment as a separate segment
the segment profit/loss is calculated as follows:
revenues - directly traceable costs - reasonably allocated costs = operating profit/loss
income and expenses are not allocated to a segment unless they are included in the determination of segment profit/loss reported to the “chief operating decision maker”
What is extensible business reporting language (XBRL)?
it is a royalty-free, open specification for software that uses XML (extensible markup language) data tags to describe financial information for business and financial reporting; XBRL is a next-generation language after HTML; HTML tells computers how to display text; XML and XBRL tell computers how to interpret the context of the text
XBRL was designed to provide an electronic format for financial and business reporting, with an overall goal of improving the way in which data is communicated; the application of XBRL tags applied to financial statements allows computers to search and assemble information quickly so that data can be accessed and analyzed by financial statement users; through XBRL, machine-readable financial statements are available real-time in digital format; this enables automated data collection, provides faster access to financial statement data, and facilitates more robust data analysis
What is a tag?
a machine-readable code that gives a standard definition for each line item in an income statement, cash flow statement, balance sheet, or other financial or nonfinancial data, included data contained in the notes to the financial statements; tags include descriptive labels, definitions, references to U.S. GAAP, and other elements that provide contextual information that allow data to recognized and processed by software
What is taxonomy?
a taxonomy defines the specific, computer-readable tags used for individual items of business and financial data
What is an instance document?
it is an XBRL formatted document that contains tagged data
What is the SEC interactive data rule?
it requires U.S. public companies and foreign private issuers that use U.S. GAAP to present financial statements and any applicable financial statement schedules in an exhibit prepared using XBRL; this exhibit is required with the filers’ SEC registration statements, quarterly and annual reports, and reports containing revised or updated financial statements
