Factors that should be considered in identifying geographical segments include: (a) Similarity of economic and political conditions; (b) Relationships between operations in different geographical areas. Business segment is a distinguishable unit of an enterprise engaged in providing products or services within a particular economic environment. Therefore, jointly used assets and liabilities are allocated to segments if, and only if, their related revenues and expenses also are allocated to those segments. Professional bodies all over the world have issued various accounting standards on segment reporting like AS-14 in Hong Kong, SFAS-31 by FASB in USA, 1FRS-8 Operating Segments by IASB at international level. The dominant source and nature of risks and returns of an enterprise should govern whether its primary segment reporting format will be business segments or geographical segments. revenue from sales to external customers and from transactions with other segments is 10% or more of the total revenue of all segments. The organisational and internal reporting structure of an enterprise will normally provide evidence of whether its dominant source of geographical risks results from the location of its assets (the origin of its sales) or the location of its customers (the destination of its sales). 51. 37. Segment result is segment revenue less segment expense. 1. The reporting requirements for the primary and secondary segments are different. 32. In addition to this, the entreprise should also present reconciliation between information disclosed for reportable segments and aggregated information in the entreprise financial statements. If you continue browsing the site, you agree to the use of cookies on this website. In presenting their conciliation, segment revenue should be reconciled to enterprise revenue; segment result should be reconciled to enterprise net profit or loss; segment assets should be reconciled to enterprise assets; and segment liabilities should be reconciled to enterprise liabilities. 52. A segment identified as a reportable segment in the immediately preceding period because it satisfied the relevant 10 per cent thresholds should continue to be a reportable segment for the current period notwithstanding that its revenue, result, and assets all no longer meet the 10 per cent thresholds. Not applicable to Level II and Level III enterprises in their entirely. If segment result includes interest expense then segment assets include related interest-bearing liabilities. 27. For lectures included in the course, click / tap Course Contents. Appendix III to this Statement presents an illustration of the disclosures for primary and secondary formats that are required by this Statement. Ltd. All rights reserved. This approach of looking to organisational and management structure of an enterprise and its internal financial reporting system to identity’ the business and geographical segments of the enterprise for external reporting purposes is sometimes called the ‘management approach’, and the organisational components for which information is reported internally are sometimes called ‘operating segments’. Changes in accounting policies adopted for segment reporting that have a material effect on segment information should be disclosed. shows that segment-reporting practices of these units have taken a new turn after the implementation of AS-17. AS -17 2. Segment result is 10% or more of the following whichever is greater in absolute amount: combined result of all segments in profit, Segment assets are 10% or more of total assets of a segment, Cost incurred in a given period to acquire segment assets expected to be used during more than one period, Expense included in segment result for depreciation and amortization pertaining to the segment assets for the period, Significant non – cash expenses other than depreciation and amortization in respect of segment assets that were included in segment expense and thus deducted while measuring segment result, segment revenue from external customers by geographical area based on the geographical location of its customers. Such disclosure is not intended to change the classification of any such items of revenue or expense from ordinary to extraordinary or to change the measurement of such items. It is revenue from sales made to external customers as reported in profit and loss statement. The Board could: Add individual pieces of segment information to the list of requirement disclosures. If an enterprise can compute segment net profit or loss or some other measure of segment profitability other than segment result, without arbitrary allocations, reporting of such amount(s) in addition to segment result is encouraged. Even if an enterprise must apply paragraph 25 because its internal segments are not along product/service or geographical lines, it will consider the next lower level of internal segmentation that reports information along product and service lines or geographical lines rather than construct segments solely for external reporting purposes. Such information helps users of financial statements: (a) Better understand the performance of the enterprise; (b) Better assess the risks and returns of the enterprise; and. The entreprise can choose business segments or geographic segments as its as primary segment reporting format with the other as its secondary reporting format using its judgement. Paragraphs 48-51 identify the disclosure requirements to be applied to each reportable segment based on secondary reporting format of an enterprise, as follows: (a) If primary format of an enterprise is business segments, the required secondary-format disclosures are identified in paragraph 48; (b) If primary format of an enterprise is geographical segments based on location of assets (where the products of the enterprise are produced or where its service rendering operations are based), the required secondary-format disclosures are identified in paragraphs 49 and 50; (c) If primary format of an enterprise is geographical segments based on the location of its customers (where its products are sold or services are rendered), the required secondary-format disclosures are identified in paragraphs 49 and 51. Provided segment assets for each geographical segment are 10% or more of total assets of all geographical assets, total cost incurred during the period to acquire segment assets expected to be used during more than one period, total carrying amount of segment assets by geographical location of assets, total cost incurred during the period to acquire segment assets expected to be used for more than one period by location of the assets. AS 17 Segment Reporting. Primary and Secondary Segment Reporting Formats:. 46. AS-17 – Segment Reporting : The objective of this standard is to establish principles for reporting financial information, about the different types of products and services an enterprise produces and the different geographical areas in which it operates. Following are the items that an entreprise must disclose for each reportable segment: Furthermore, an entreprise need not disclose depreciation and amortization expense as well as non cash expenses of a segment if it reports the amount of cash flows arising from operating, investing and financing activities of such a segment. Information may be abridged and therefore incomplete. The disclosure, however, does change the level at which the significance of such items is evaluated for disclosure purposes from the enterprise level to the segment level. Scope: For General Purpose Financial Statements or Consolidated Financial Statements. As per AS 17, Segment Reporting is useful for better understanding of the financial statements and taking decisions by the users. In the context of reporting of segment information in consolidated financial statements, the references in this Statement to any financial statement items should construed to be the relevant item as appearing in the consolidated financial statements. This Statement should be applied in presenting general purpose financial statements. AS-17 Segment Reporting issued by ASB of ICAI has the following guidelines on identifying reportable segments: Guideline # 1. If total external revenue attributable to reportable segments constitutes less than 75 per cent of the total enterprise revenue, additional segments should be identified as reportable segments, even if they do not meet the 10 per cent thresholds in paragraph 27, until at least 75 per cent of total enterprise revenue is included in reportable segments. Conversely, an enterprise may choose not to allocate some item of revenue, expense, asset or liability for internal financial reporting purposes, even though a reasonable basis for doing so exists. Determining the composition of a business or geographical segment involves a certain amount of judgment. Paragraphs 39-46 identify the disclosure requirements to be applied to each reportable segment based on primary reporting format of an enterprise. An example of a measure of segment performance above segment result in the statement of profit and loss is gross margin on sales. Pension calculations, for example, often are done for an enterprise as a whole, but the enterprise-wide figures may be allocated to segments based on salary and demographic data for the segments. In India Institute of Chartered Accountants of India has issued AS-17 which is being reproduced for the reference of the students. An enterprise should disclose the following for each reportable segment: (a) Segment revenue, classified into segment revenue from sales to external customers and segment revenue from transactions with other segments; (c) Total carrying amount of segment assets; (e) Total cost incurred during the period to acquire segment assets that are expected to be used during more than one period (tangible and intangible fixed assets); (f) Total amount of expense included in the segment result for depreciation and amortisation in respect of segment assets for the period; and. Try QuickBooks Invoicing & Accounting Software – 30 Days Free Trial. Segment Disclosure Requirements For segment disclosure requirements, three alternatives were considered. The objective of this statement is to establish principles for reporting financial information, about different types of products and services an enterprise produces and the different geographical areas in which it operates. 2. As 17 - Segment Reporting - Free download as Powerpoint Presentation (.ppt / .pptx), PDF File (.pdf), Text File (.txt) or view presentation slides online. Organisational and management structure of an enterprise and its internal financial reporting system normally provide the best evidence of the predominant source of risks and returns of the enterprise for the purpose of its segment reporting. https://quickbooks.intuit.com/in/resources/accounting-taxes/accounting-standard-17/. 8. In that case, the directors and management of the enterprise should determine its business segments and geographical segments for external reporting purposes based on the factors in the definitions in paragraph 5 of this Statement, rather than on the basis of its system of internal financial reporting to the board of directors and chief executive officer, consistent with the following: (a) If one or more of the segments reported internally to the directors and management is a business segment or a geographical segment based on the factors in the definitions in paragraph 5 but others are not, sub-paragraph (b) below should be applied only to those internal segments that do not meet the definitions in paragraph 5 (that is, an internally reported segments that meets the definition should not be further segmented); (b) For those segments reported internally to the directors and management that do not satisfy the definitions in paragraph 5, management of the enterprise should look to the next lower level of internal segmentation that reports information along product and service lines or geographical lines, as appropriate under the definitions in paragraph 5; and. 9. A geographical segment is a distinguishable component of an enterprise that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments. Require the disclosures in Topic 280, Segment Reporting, to be reported in a … Accounting standard 17 deals with segment reporting that was established to help better understand performance risk and returns of an enterprise. AS Following are the categories of entreprises to which accounting standard 17 applies for a given accounting period: Business segment is a distinguishable unit of an entreprise engaged in providing individual product or service or a group of related products or services. In this article you will learn different ways in which an entreprise can take segment reporting, identifying reportable segments, business and geographical segments, reportable segments etc. Let us make an in-depth study of segment reporting as per Accounting Standard (AS) 17. Similarly, a single geographical segment does not include operations in economic environments with significantly differing risks and returns. An enterprise that provides segment cash flow disclosures need not disclose depreciation and amortisation expense and non-cash expenses pursuant to sub- paragraphs (f) and (g) of paragraph 40. Further, it is subject to risk and returns that are different from those of other business segments. 50 crores. Segment assets include goodwill that is directly attributable to a segment or that can be allocated to a segment on a reasonable basis, and segment expense includes related amortisation of goodwill. 7. An enterprise is encouraged, but not required, to disclose the nature and amount of any items of segment revenue and segment expense that are of such size, nature, or incidence that their disclosure is relevant to explain the performance of the segment for the period. For a clearer understanding of the performances of segments. If primary format of an enterprise for reporting segment information is geographical segments that are based on location of assets, and if the location of its customers is different from the location of its assets, then the enterprise should also report revenue from sales to external customers for each customer- based geographical segment whose revenue from sales to external customers is 10 per cent or more of enterprise revenue. A single business segments does not include products and services with significantly differing risks and returns. AS 17 Segment reporting (An Overview) By Narayanan. If the risks and returns of an enterprise are affected predominantly by differences in the products and services it produces, its primary format for reporting segment information should be business segments, with secondary information reported geographical. Accordingly, paragraph 20(b) requires the directors and management of the enterprise to determine whether the risks and returns of the enterprise are more product/service driven or geographically driven and to accordingly choose business segments or geographical segments as the primary basis of segment reporting. (a) Extraordinary items as defined in AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies; (b) Interest expense, including interest incurred on advances or loans from other segments, unless the operations of the segment are primarily of a financial nature; (c) Losses on sales of investments or losses on extinguishment of debt unless the operations of the segment are primarily of a financial nature; (e) General administrative expenses, head-office expenses, and other expenses that arise at the enterprise level and relate to the enterprise as a whole. 47. Paragraphs 47-51 identify the disclosures required for secondary reporting format of an enterprise. 36. 19. The liabilities of segments whose operations are not primarily of a financial nature do not include borrowings and similar liabilities because segment result represents an operating, rather than a net-of-financing, profit or loss. If internal organisational and management structure of an enterprise and its system of internal financial reporting to the board of dire… (iii) Revenue from transactions with other segment of the enterprise. 23. The accounting standard helps readers grasp the well-being of the enterprise, assess the risks involved, and make better informed decisions about the enterprise as a whole. If Financial report contains both, then on the basis of CFS. The definition allows geographical segments to be based on either: (a) The location of production or service facilities and other assets of an enterprise; or. (b) The total cost incurred during the period to acquire segment assets that are expected to be used during more than one period (tangible and intangible fixed assets) by location of the assets. It deals with the provisions pertaining to the reporting of segment information in order to meet the needs of the users of the financial statements. Segment assets are those operating assets that are employed by a segment in its operating activities and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis. In some cases, organisation and internal reporting of an enterprise may have developed along lines unrelated to both the types of products and services it produces, and the geographical areas in which it operates. the managerial approach). 48. Provided the revenue from sales to external customers for each geographical segment is 10% or more of entreprise revenue, total carrying amount of segment assets by geographical location of assets provided the segment assets for each geographical segment are 10% or more of the total assets of all geographical segments, total cost incurred during the period to acquire segment assets expected to be used for more than one period by geographical location of assets. The predominant sources of risks affect how most enterprises are organized and managed. While there may be dissimilarities with respect to one or several of the factors listed in the definition of business segment, the products and services included in a single business segment are expected to be similar with respect to a majority of the factors. (ii) The combined result of all segments in loss, whichever is greater in absolute amount; or (c) its segment assets are 10 percent or more of the total assets of all segments. Accordingly, an enterprise looks to this structure to determine whether its geographical segments should be based on the location of its assets or on the location of its customers. The following is the text of Accounting Standard 17, ‘Segment Reporting’, issued by the Council of the Institute of Chartered Accountants of India. The objective of this Statement is to establish principles for reporting financial information, about the different types of products and services an enterprise produces and the different geographical areas in which it operates. Report a Violation, Top 7 Problems of Segment Reporting | Financial Analysis, Interim Financial Reporting as per Accounting Standard (AS)-25, Top 9 Suggestions for Report Improvement | Preparation of a Report. if internal organisational and management structure of an enterprise and its system of internal financial reporting to the board of directors and the chief executive officer are based neither on individual products or services or groups of related products/services nor on geographical areas, the directors and management of the enterprise should determine whether the risks and returns of the enterprise are related more to the products and services it produces or to the geographical areas in which it operates and should, accordingly, choose business segments or geographical segments as the primary segment reporting format of the enterprise, with the other as its secondary reporting format. AS 5 requires that changes in accounting policies adopted by the enterprise should be made only if required by statute, or for compliance with an accounting standard, or if it is considered that the change would result in a more appropriate presentation of events or transactions in the financial statements of the enterprise. There can be two possibilities: The entreprise can consider business segments as its primary segment reporting format and geographic segments as its secondary format. 6. 11. Enterprises are encouraged to make all of the primary segment disclosures identified in Paragraph 39—46 for each reportable secondary segment although Paragraph 47—51 requires considerably less disclosure on Secondary basis. Each financial situation is different, the advice provided is intended to be general. Internal organisation and management structure of an enterprise and its system of internal financial reporting to the board of directors and the chief executive officer should normally be the basis for identifying the predominant source and nature of risks and differing rates of return facing the enterprise and, therefore, for determining which reporting format is primary and which is secondary, except as provided in sub­paragraphs, if risks and returns of an enterprise are strongly affected both by differences in the products and services it produces and by differences in the geographical areas in which it operates, as evidenced by a “matrix approach” to managing the company and to reporting internally to the board of directors and the chief executive officer, then the enterprise should use business segments as its primary segment reporting format and geographical segments as its secondary-reporting format; and. The basis of pricing inter-segment transfers and any change therein should be disclosed in the financial statements. Segment Liabilities. It is not possible or appropriate to specify a single basis of allocation that should be adopted by all enterprises; nor is it appropriate to force allocation of enterprise asset, liability, revenue, and expense items that relate jointly to two or more segments, if the only basis for making those allocations is arbitrary. In such cases, the internally reported segments data will not meet the objective of this Statement. AS-17 Segment Reporting The objective of this Standard is to establish principles for reporting financial information about the different types of products and services an enterprises produces and the different geographical areas. The objective is to achieve a reasonable degree of comparability with other enterprises, enhance understandability of the resulting information, and meet the needs of investors, creditors, and others for information about product/service-related and geographically-related risks and returns. If that segment is not designated as a reportable segment, it should be included as an unallocated reconciling item. The way in which asset, liability, revenue, and expense items are allocated to segments depends on such factors as the nature of those items, the activities conducted by the segment, and the relative autonomy of that segment. If a single financial report contains both consolidated financial statements and the separate financial statements of the parent, segment information need be presented only on the basis of the consolidated financial statements. Therefore, reporting of segment information is widely regarded as necessary for meeting the needs of users of financial statements. Where the effect of such change is not ascertainable, wholly or in part, the fact should be indicated. Examples include changes in identification of segments and changes in the basis for allocating revenues and expenses to segments. 8. Further, because debt is often issued at the head-office level on an enterprise-wide basis, it is often not possible to directly attribute, or reasonably allocate, the interest-bearing liabilities to segments. Some changes in accounting policies relate specifically to segment reporting. (d) Special risks associated with operations in a particular area; A reportable segment is a business segment or a geographical segment identified on the basis of foregoing definitions for which segment information is required to be disclosed by this Statement. Such disclosure should include a description of the nature of the change, and the financial effect of the change if it is reasonably determinable. 21. Further, it is subject to risk and returns that are different from units operating in other economic environments. Objective : The objective of this Standard is to establish principles for reporting financial information, about the different types of products and services an enterprise produces and the different geographical areas in which it operates. 41. What is Reportable Segment? INDAS 108 3. Segment liabilities are those operating liabilities that result from the operating activities of a segment and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis. Its predominant source of risks and returns becomes its primary segments reporting format. AS 17, on segment reporting is mandatory in respect of accounting periods commencing on or after 1-4-2001 in respect of enterprises (a) whose equity or debt securities are listed on a stock exchange in India or in process of listing on stock exchange or (b) all other enterprises whose turnover for the accounting period exceeds Rs. An enterprise should indicate the types of products and services included in each reported business segment and indicate the composition of each reported geographical segment, both primary and secondary, if not otherwise disclosed in the financial statements. Segment assets include operating assets shared by two or more segments if a reasonable basis for allocation exists. Purpose of this standard are 1.Better understand the performance of the enterprise. The disclosure requirements in Paragraph 40—46 should be applicable to each reportable-segments based on primary reporting format of an enterprise. (c) If such an internally reported lower-level segment meets the definition of business segments or geographical segment based on the factors in paragraph 5, the criteria in paragraph 27 for identifying reportable segments should be applied to that segment. If primary format of an enterprise for reporting segment information is geographical segments (whether based on location of assets or location of customers, it should also report the following segment information for each business segment whose revenue from sales to external customers is 10 per cent or more of enterprise revenue or whose segment assets are 10 per cent or more of the total assets of all business segments: (a) Segment revenue from external customers; (b) The total carrying amount of segment assets; and. In such a case, entreprise should also record revenue fro sale to external customers for each customer based geographical segment. Examples of segment liabilities include trade and other payables, accrued liabilities, customer advances, product warranty provisions, and other claims relating to the provision of goods and services. The nature of segment reporting issues for not-for-profit entities are different from those facing for-profit entities. Enterprises are encouraged to make all of the primary-segment disclosures identified in paragraphs 39-46 for each reportable secondary segment although paragraphs 47-51 require. This Statement does not require, but does not prohibit, a ‘matrix presentation’. Intuit and QuickBooks are registered trademarks of Intuit Inc. Accounting Standard 5, ‘Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies’ requires that “when items of income and expense within profit or loss from ordinary activities are of such size, nature or incidence that their disclosure is relevant to explain the performance of the enterprise for the period, the nature and amount of such items should be disclosed separately”. Withdrawal of IAS 14 This IFRS supersedes And the location of customers is different from the location of its assets. 2. If the primary format of segment reporting is business segments, following information should also be reported: There are cases where primary format of segment reporting is geographical segments (whether based on location of assets or location of customers). The 10 per cent thresholds in this Statement arc not intended to be a guide for determining materiality for any aspect of financial reporting other than identifying reportable business and geographical segments. 42. Objectives. Examples of measures of segment performance below segment result in the statement of profit and loss are profit or loss from ordinary activities (either before or after income taxes) and net profit or loss. 38. 58. Appendix III to these statements illustrates the application of these disclosure standard. If a change is made in the accounting policies which has no material effect on the financial statements for the current period but which is reasonably expected to have a material effect in later periods, the fact of such change should be appropriately disclosed in the period in which the change is adopted. (c) Make more informed judgments about the enterprise as a whole. Latest edition: KPMG’s updated guidance on and interpretation of ASC 280, Segment Reporting – with analysis, Q&As and examples. And the assets of the entreprise are located in different geographical areas from its customers. As- 17 Segment Reporting The standard prescribe the procedure and manner of reporting of financial performance of various products and service and geographical performance instead of a company as a whole for better understanding of the financial statement. Accounting Standard (AS) 17: Segment Reporting: Accounting Standard (AS) 18: Related Party Disclosures: Accounting Standard (AS) 19: Leases: Accounting Standard (AS) 20 : Earnings Per Share: Accounting Standard (AS) 21 : Consolidated Financial Statements: Accounting Standard (AS) 22 : Accounting for Taxes on Income: Accounting Standard (AS) 23 A business segment or geographical segment should be identified as a reportable segment if: (a) Its revenue from sales to external customers and from transactions with other segments is 10 per cent or more of the total revenue, external and internal, of all segments; or. On behalf of a segment of cookies on this website internal financial reporting system are normally the of. Environments with significantly differing risks and returns that are different from those of other business segments does not include in. 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