1.6 Scope

ASC 280-10

15-2 The guidance in the Segment Reporting Topic applies to all public entities, with certain exceptions noted below. Entities other than public entities are also encouraged to provide the disclosures described in this Subtopic.

15-3 The guidance in this Subtopic does not apply to the following entities:

Parent entities, subsidiaries, joint ventures, or investees accounted for by the equity method if those entities’ separate company statements also are consolidated or combined in a complete set of financial statements and both the separate company statements and the consolidated or combined statements are included in the same financial report. However, this Subtopic does apply to those entities if they are public entities and their financial statements are issued separately.
Not-for-profit entities (regardless of whether the entity meets the definition of a public entity as defined above).
Nonpublic entities.

ASC 280-10-20 defines a public entity as follows:

A business entity or a not-for-profit entity that meets any of the following conditions:

It has issued debt or equity securities or is a conduit bond obligor for conduit debt securities that are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local or regional markets).
It is required to file financial statements with the Securities and Exchange Commission (SEC).
It provides financial statements for the purpose of issuing any class of securities in a public market.

Throughout this Roadmap, the terms “entities” and “public entities” are used interchangeably to refer to public entities that are within the scope of ASC 280, including entities that are preparing for the sale of securities in a public market, such as in an initial public offering (see Section 1.3 of Deloitte’s Roadmap Initial Public Offerings), and broker-dealers.

While only public entities as defined in ASC 280 must provide the segment disclosures required by ASC 280, nonpublic and not-for-profit entities are not precluded from providing them; in fact, ASC 280-10-15-2 states that all entities are encouraged to do so. In addition, as discussed in Section 1.6.5, entities with recognized goodwill may need to consider certain elements of ASC 280 when testing goodwill for impairment under ASC 350.

1.6.1 Financial Statements of Entities With Publicly Traded Debt Only or Conduit Bond Obligors

The requirement to provide segment disclosures is not limited to entities with publicly traded equity securities. ASC 280-10-15-2 notes that the guidance in ASC 280 applies to all public entities, which ASC 280-10-20 defines in part as those entities that have “issued debt or equity securities or [are] conduit bond obligor[s] for conduit debt securities that are traded in a public market.” Therefore, such entities would need to consider the segment disclosure requirements in ASC 280.

Example 1-2

Company A is a wholly owned U.S. subsidiary of a Japan-domiciled entity. Company A does not have any public equity that is traded in a public market. However, A has medium-term notes that are traded on the New York Stock Exchange. Because A has debt securities that are traded in a public market, A is required to present segment information in accordance with ASC 280 when preparing financial statements that comply with U.S. GAAP.

1.6.2 Segment Disclosures in Financial Statements of Businesses Acquired or to Be Acquired

ASC 280-10-15-2 limits the requirement to disclose segment information to “public entities” as that term is defined in ASC 280. Financial statements that are furnished in accordance with SEC Regulation S-X, Rule 3-05 or Rule 3-14, are not required to include segment information unless the business itself is a public entity.

Example 1-3

Company C has no publicly traded equity or debt securities and is not providing financial statements to issue any class of securities in a public market. In addition, C is not required to file its financial statements with the SEC. Company C has been acquired by Company D, which is required to file financial statements with the SEC because its equity securities are publicly traded. Company C meets the significance tests in Regulation S-X, Rule 3-05; therefore, D is required to include C’s financial statements in D’s Form 8-K to report the acquisition.

Because C does not meet the definition of a public entity, it is not required under ASC 280 to provide segment disclosures in the financial statements included in D’s Form 8-K.

1.6.3 Separate Financial Statements Included in an SEC Filing

ASC 280-10-15-3 excludes “[p]arent entities, subsidiaries, joint ventures, or investees accounted for by the equity method if those entities’ separate company statements also are consolidated or combined in a complete set of financial statements and both the separate company statements and the consolidated or combined statements are included in the same financial report.” Accordingly, equity method investees whose financial statements are included in a registrant’s filing under SEC Regulation S-X, Rule 3-09, are not required to include segment information in the filing unless the equity method investee itself is a public entity.

Example 1-4

Company E has a nonpublic equity method investee, Company F, which is significant under Regulation S-X, Rule 3-09, and is not an SEC filer. Company F’s financial statements are included in E’s annual report only because of its significance under Regulation S-X, Rule 3-09.

Because F does not meet the definition of a public entity, it is not required under ASC 280 to provide segment disclosures in its financial statements that are included in E’s annual report.

1.6.4 Competitive Harm

While some respondents to the exposure draft of FASB Statement 131 noted the potential for competitive harm as a result of disclosing segment information, the Board decided that a competitive harm exemption was inappropriate “because it would provide a means for broad noncompliance.” Accordingly, all provisions of ASC 280 apply to entities that are within its scope. Observations about the absence of any competitive harm considerations in ASC 280 were made at the 2015 AICPA Conference on Current SEC and PCAOB Developments by Wesley R. Bricker, then deputy chief accountant in the SEC’s Office of the Chief Accountant (OCA), whose prepared remarks stated the following:

Some registrants have contended in their consultations, including on segment reporting, that they should not be required to apply a GAAP standard because the result would be “competitively harmful” or “misleading.” These arguments are troubling, since they disregard the thoughtful balance taken by the accounting standard setters in crafting reporting standards that provide transparent, useful information to investors. A better approach starts with identifying what information is useful to investors, why, and how that information can be appropriately reported.

1.6.5 Considerations for Entities That Are Not Within the Scope of ASC 280

Entities that are not within the scope of ASC 280 but have goodwill balances that must be tested for impairment will need to consider the portions of ASC 280 related to the identification of operating segments unless the entities (1) are eligible for and have elected the alternative accounting for the subsequent measurement of goodwill outlined in ASC 350-20-35-62 through 35-82 and (2) elect an accounting policy to test goodwill for impairment at the entity level, as discussed in ASC 350-20-35-65. See Chapter 3 of Deloitte’s Roadmap Goodwill for a discussion of goodwill accounting alternatives for private companies and not-for-profit entities.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.