Lecture: Segment Reporting

Main Objective

• The entity should disclose so that users can understand the nature of segments and their financial effects.

Importance

• The core principle of the standard: Providing ENOUGH INFORMATION to users so they can:
  • Understand the nature of the segments.
  • Understand the financial effects of the segments.

Applicability

• Those listed on a stock exchange
• Those in the process of listing
• Applicable to consolidated accounts, not single accounts.

Identification of Operating Segments

1. Sales Revenue
2. Separate accounts are maintained
3. CODM demands separate data

CODM (Chief Operating Decision Maker)

• Not a person's name, but a function that CEO, COO, or directors can perform collectively.
• CODM can receive both product-wise and area-wise data.
• Reports can be both product-wise and area-wise.
• The reportable segment will be the one qualifying for segment reporting.

Aggregation

• Operating segments can be aggregated if they have common characteristics.
• Example:
  • Pharma and Hospital
  • Catering and Bakery
• Segments with similar economic characteristics can be aggregated.

Identification of Reportable Segments

• Sales 10% or more
• Assets 10% or more
• Profit or Loss 10% or more

75% Sales Test

• 75% Test: If the total sales of reported operating segments are less than 75%, additional segments will be added.

Required Disclosures

1. Product-wise Sales
2. Geographic Area-wise Sales
3. Information about Major Customers

• Major Customers: Those whose sales are 10% or more of total external sales.

Special Notes

• If an operating segment had sales of more than 10% last year, it should be disclosed the next year as well if it is still significant.
• Similarly, if a non-reportable segment last year has more than 10% this year, last year's data should be restated.

Examples

• Products: Cement, Energy, Sugar, Dairy
• Customers: John, Sinsen, Bablu
• Geographic Areas: Germany, Poland, Holland, Spain, Italy, Karachi, Lahore

data