Basics of Segment Reporting

What is segment reporting?
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Table of contents
1. Understanding segment reporting

2. What qualifies as an operating segment?
3. How to approach segment reporting in accounting
4. Segment reporting: GAAP vs. IFRS
5. Company-wide disclosure requirements
6. We can help
Transitioning from a private to a public company comes with increased accountability

demands, particularly when it comes to financial reporting. One of the requirements for
private companies is segmental, or segment reporting. Here’s what you need to know.
Understanding segment reporting

Segment reporting breaks down the operations of a company into manageable pieces,
or segments. Public companies must then record detailed financial statements for each
operating segment. The goal is to increase transparency for creditors and investors,
especially regarding the company’s most important operating units. This shines a
focused light on performance, helping investors make better decisions and predict
future prospects for cash flow.
Details of the segment reporting requirements are outlined by the Generally Accepted
Accounting Principles (GAAP), specifically in FASB Accounting Standards
Codification (ASC) Topic 280. We’ll take a look at these below.
What qualifies as an operating segment?
According to GAAP, any unit that engages in business activities that result in incurred
expenses or earned revenue qualifies as a segment. Furthermore, the company’s chief
decision-maker should regularly review an operating segment’s results for assessment
purposes for it to qualify as a segment.
Here are a few more segment reporting requirements:

1. If multiple segments have similar services, processes, products, distribution
methods, and customers, they can be aggregated and reported as a single
segment.
2. If a segment covers at least 10% of the entity’s profit or loss, 10% of its assets,
or 10% of its revenues, it must be reported.
3. If your reported segments account for less than 75% of the company’s total
revenue, you should add more segments to reach that reporting threshold.
Using the criteria above, you can see that some companies might only have one or two
operating segments. For example, a company might have several different product
categories, but if these don’t fall under regular review by the chief decision-maker, they
wouldn’t necessarily qualify as operating segments. Furthermore, if these separate
product categories are very similar in scope, they can be aggregated together into a
single segment.
How to approach segment reporting in accounting
As with any financial statements, the information used for segment reporting in
accounting should include all relevant data. This should start with the factors you’ve
used to identify the reportable segments, as well as the basis of its organization.
Background reporting information should also include the types of products or services
sold.
With this background information, each segment report should list the same figures that
would be listed in any financial accounts, including:
 Revenues
 Profit or loss
 Interest and depreciation
 Businesses expenses
 Equity method interests
 Income tax expenses
 Material items
Segment reporting: GAAP vs. IFRS

GAAP’s reporting requirements only apply to US-based companies, but
the International Financial Reporting Standards (IFRS) – a set of accounting
standards used by companies all around the world – are basically identical. This makes
it easy to compile segment reports for multiple branches of a multinational company. In
other words, segment reporting for GAAP vs. IFRS should be virtually the same.
Company-wide disclosure requirements

In addition to the segment reporting examples outlined above, companies are also
required to disclose three types of entity-wide pieces of information to investors. These
include:
1. Product and service information: This should outline the specific revenue earned
for each type of service or product generated by the company.
2. Geographic area information: This disclosure requires the company to provide
information about all geographic areas of operation, including revenue from its
home country and abroad. Foreign assets should be revealed, as well.
3. Major customer information: This section reveals if a company’s revenue relies
on a single major customer. The regulation states that if a company earns at
least 10% of its external revenues from any one customer, this must be disclosed
along with the applicable segment. However, the customer’s identity does not
need to be revealed.
Segment reporting offers a way for companies to make financial statements easier to
read and analyze. You can stay on top of these requirements by keeping detailed
records of all transactions.
BASICS OF SEGMENT REPORTING
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- True or False, Theory Only

- Focus:
 Understanding segment reporting
 What qualifies as an operating segment?
 How to approach segment reporting in accounting

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What is segment reporting?

1. Understanding segment reporting

Transitioning from a private to a public company comes with increased accountability

Understanding segment reporting

What qualifies as an operating segment?

Here are a few more segment reporting requirements:

How to approach segment reporting in accounting

Segment reporting: GAAP vs. IFRS

Company-wide disclosure requirements

BASICS OF SEGMENT REPORTING

- True or False, Theory Only

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