Segment Reporting (Portfolio 5119)

Portfolio 5119-2nd, Segment Reporting, explains and analyzes the disclosure and reporting requirements of FASB Accounting Standards Codification (ASC) Topic 280, Segment Reporting, and discusses other applicable FASB Codification Topics and the related accounting and reporting requirements of the U.S. Securities and Exchange Commission (SEC). 

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Portfolio 5119-2nd, Segment Reporting, explains and analyzes the disclosure and reporting requirements of FASB Accounting Standards Codification (ASC) Topic 280, Segment Reporting, and discusses other applicable FASB Codification Topics and the related accounting and reporting requirements of the U.S. Securities and Exchange Commission (SEC). Examples of segment reporting from the financial statements of various companies are analyzed.
ASC 280 applies to the annual and interim external financial reports of public business enterprises (i.e., publicly-owned companies, most of which are typically SEC registrants and/or file reports with the SEC). The Topic prescribes a “management approach” requiring enterprises to report segment information in a manner consistent with the way that management has organized the firm internally for making operating decisions and assessing performance. Therefore, enterprises can provide segment information based on products and services, geographic location, legal entity, customer type, or another basis as long as the reporting comports with the way in which management has organized segments internally for decision-making purposes.
The Portfolio also compares and contrasts ASC 280 with international accounting guidance on segment reporting. International Financial Reporting Standard 8, Operating Segments (IFRS 8), issued in November 2006, applies to annual financial statements for periods beginning on or after Jan. 1, 2009, with earlier application permitted. Until then, international segment reporting is governed by IASB International Accounting Standard 14, Segment Reporting (IAS 14 (rev.)). The Portfolio includes an example illustrating disclosures under IAS 14 (rev.).
The Detailed Analysis and Worksheets illustrate and highlight contemporary reporting practices and auditing issues demonstrating: (1) that segment data can be utilized as inputs into both accrual and cash flow ratios, (2) how segment data may be utilized to analyze the acquisition of a business entity to supplement or complement the company's existing operations, (3) that the Management Discussion and Analysis (MD&A) component of the annual report filed with the SEC on Form 10-K often provides relatively more comprehensive segment information than do company disclosures provided under the provisions of FAS 131, (4) the use of segment information where each segment is defined by a geographic unit, (5) the manner in which some companies interpret the precise technical requirements of ASC 280, and (6) the background, review, and analysis of audit standards as they apply to ASC 280.
In November 2006, the International Accounting Standards Board (IASB is the successor to the International Accounting Standards Committee) issued IFRS, Operating Segments. IFRS 8, replaces IAS 14 and more closely aligns international segment reporting with the requirements of ASC 280. Section V.C. covers IFRS 8.
This Portfolio may be cited as BNA Tax and Accounting Portfolio 5119-2nd, Schiff, Schiff and Mazza, Segment Reporting (Accounting Policy and Practice Series).

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Dr. Allen I. Schiff is Area Chairman of Accounting at the Schools of Business at Fordham University. Dr. Schiff also serves as the Director of the MBA Field Study Consulting Program. Dr. Schiff received his Ph.D. from New York University in 1974. He also earned an M.S in Accounting from New York University in 1974 and B.A. in Economics in 1967 from New York University. His articles have appeared in numerous publications. Additionally, he served as a Faculty Fellow at PricewaterhouseCoopers. He also serves as an outside Director and an Audit Committee member of a publicly-traded company.

Dr. Jonathan B. Schiff is professor of accounting at the Silberman School of Business of Fairleigh Dickinson University. Dr. Schiff received his Ph.D. from New York University in 1985 and completed an M.S. in Accounting from New York University in 1975. He has extensive consulting experience with top companies such as American Express, DaimlerChrysler, GE, Merck & Co., and is the founder of the Finance Development & Training Institute, a best practices alliance of global companies. Dr. Schiff is the author of over 60 articles in both the academic and practitioner literature and specializes in corporate financial reporting, internal control, CFO practices and cost management.

Dr. Cheri R. Mazza is an Associate Professor of Accounting at Fordham University where she teaches graduate and undergraduate financial accounting courses. Dr. Mazza received a Ph.D. in Accounting from the University of North Texas in 1994, an M.S. in Accounting from Illinois State University in 1983, and a B.S. in Business Education from Indiana University of Pennsylvania in 1979. She is a Certified Public Accountant and a Certified Management Accountant. Prior to joining Fordham, Dr. Mazza was a project manager at the Financial Accounting Standards Board (FASB). Dr. Mazza's research encompasses issues in contemporary financial reporting, standard setting, and quality of earnings. She has published numerous articles in academic and professional journals.


Detailed Analysis

I. Introduction and Scope of Portfolio

A. In General

B. History of Segment Reporting

II. Reporting and Disclosure of Segments Under U.S. Accounting Standards

A. The Advent of SFAS 131

B. Scope

C. Objectives

D. Summary of SFAS 131

E. Identifying Operating Segments

F. Reportable Segments

1. Reportable Segments Without Aggregation

2. Reportable Segments Resulting From Aggregation

3. Quantitative Thresholds

4. Minimum Number of Segments Presented

5. Changes in Classification of a Segment

6. Maximum Number of Segments Presented

G. Disclosure Required for Reportable Segments

1. General Information

2. Information About Profit or Loss

3. Information About Assets

4. Measurement of Segment Profit or Loss and Assets

5. Reconciliations

6. Interim Period Information

a. Users Needs for Quarterly Segment Reporting

b. SFAS 131 Requirements

c. Interim Reporting Examples

7. Restatement of Previously Reported Information

H. Enterprise-Wide Disclosures

1. Information About Products and Services

2. Information About Geographic Areas

3. Information About Major Customers

I. Illustration of the Application of SFAS 131-IBM Corporation

J. Commentary on Specific Issues

1. Criticisms of the Management Approach and the Lack of Guidelines for the Measurement of Segment Profit or Loss and Assets

2. Profit or Loss and Asset Measurements that Could be Used by the CODM

3. Transfer Pricing

III. Illustrations and Analysis of Key Issues in Segment Reporting

A. Segment Ratio Analysis-Accrual and Cash Flow Ratio

B. Utilizing Segment and Entity Data to Analyze the Purchase and Subsequent Performance of an Acquired Segment

1. Background

2. Segment Information

3. Derived Measures of Profitability and Asset Efficiency

4. Concluding Discussion and Assessment

C. Reporting of Segments in the Management Disclosure and Analysis Section of the Annual Report

1. History of Requirement

2. Sample Disclosures

3. Reportable Segments

4. Summary

D. Issues of Consistency and Reporting for Decision Making and Evaluation

1. Briggs & Stratton Corp.

2. Caterpillar Inc.

IV. Auditor Considerations

Introductory Material

A. History

B. Analysis of Interpretation

C. Specific Guidance for the Preparer Community

1. Available Educational Material

2. Segment Reporting Workpaper and Schedules

a. Basic Facts

b. Additional Information

c. Analysis

V. International Segment Reporting

Introductory Material

A. Effective Dates

B. Scope of Analysis


1. Development of IFRS 8

2. Main Features of IFRS 8

a. Scope

b. Required Information

3. Interim Financial Reporting

D. IAS 14 (rev.)

1. Basic Approach of IAS 14 (rev.)

2. Illustration: Roche Group

E. Domestic and International Standards Compared

1. IFRS 8 Compared With SFAS 131

2. IAS 14 (rev.) Compared With SFAS 131


Working Papers


Worksheet 1 Segment Reports IBM Corporation and Subsidiary Companies

Worksheet 2 Segment Reporting: Lucent Technologies

Worksheet 3 Segment Reports: Cooper Tire and Rubber Company Management's Discussion and Analysis

Worksheet 4 Motorola Corporation Management's Discussion and Analysis on Segment Reporting

Worksheet 5 Segment Report: Briggs & Stratton Corporation

Worksheet 6 Segment Reports Caterpillar Inc.

Worksheet 7 Example of Preparing Financial Statements by Segment

Worksheet 8 Summary and Critique of SFAS 14

Worksheet 9 Roche Group Segment Reports

Worksheet 10 Examples of Interim Segment Reports

Worksheet 11 Illustration of Current Professional Financial Analysts and Institutional Investor Concerns About Segment Reporting

Worksheet 12 Excerpts from IAS 14(rev.): Segment Reporting

Worksheet 13 List of Significant Accounting Pronouncements Principally Discussed

Worksheet 14 IFRS 8, Operating Segments

Worksheet 15 Guidance From IASB on Implementing IFRS 8, Operating Segments

Worksheet 16 Segment Reporting



Securities and Exchange Commission:

SEC Regulations

American Institute of Certified Public Accountants Materials:

Accounting Principles Board Opinions

Statement on Auditing Standards

Financial Accounting Standards Board Materials:

Statement of Financial Accounting Standards

International Accounting Standards Committee Materials: