3.4 Step 3: Evaluate Remaining Operating Segments for Aggregation
ASC 280-10
50-13 An entity may combine
information about operating segments that do not meet the
quantitative thresholds with information about other
operating segments that do not meet the quantitative
thresholds to produce a reportable segment only if
aggregation is consistent with the objective and basic
principles of this Topic, the segments have similar economic
characteristics, and the operating segments share a majority
of the aggregation criteria listed in paragraph
280-10-50-11.
Once an entity has identified those operating segments that meet the 10 percent
requirements or are otherwise qualitatively material and must be reported
separately, the entity can apply the guidance in ASC 280-10-50-13, which permits the
combination of any remaining segments if all of the following criteria are met:
-
Aggregation is consistent with the objectives and principles of ASC 280 (see Section 3.2.2).
-
The segments have similar economic characteristics (see Section 3.2.3).
-
The segments share a majority of qualitative aggregation criteria outlined in ASC 280-10-50-11 (see Section 3.2.4).
Aggregation of any remaining operating segments must be consistent with the
objectives and principles of ASC 280. This requirement was discussed by staff of the SEC’s OCA at the 2015 AICPA
Conference on Current SEC and PCAOB Developments:
In performing
[the analysis in ASC 280-10-50-13], registrants should consider what additional
level of detail would be useful to users of the financial statements for
purposes of understanding the entity’s performance, assessing its prospects for
future cash flows, and making more informed judgments about the entity as a
whole.
ASC 280-10
Example 2: Identifying Reportable Segments
55-31 Assume that an entity has
identified six operating segments prior to applying the
aggregation criteria. Segments B and D have been identified
as reportable segments based on the 10 percent threshold
criteria in paragraph 280-10-50-12. The revenue from
external customers (there are no intersegment transactions)
for each of the six segments is as follows.
Case A: Aggregation if Only a Majority of the Aggregation Criteria Is Met
55-33 Segment E is below the 10 percent threshold while Segment D is above the 10 percent threshold.
Assume that only a majority of the aggregation criteria is met.
55-34 The aggregation criteria
in paragraph 280-10-50-11 (which requires all of the
specified criteria to be met) permit aggregation of
identified operating segments prior to an evaluation of the
significance of the identified operating segments to
determine which are reportable. In other words, segments are
first identified, then identified segments may be
aggregated, if management so chooses, and if the aggregation
criteria in that paragraph are met (at this stage all of the
specified criteria must be met to be able to aggregate the
identified operating segments). Next, an evaluation of the
significance of the identified operating segments is
performed to determine which are reportable. An operating
segment is considered reportable if it meets any one of the
threshold criteria. After reportable segments are identified
based on the threshold criteria, paragraph 280-10-50-13
permits a public entity to aggregate segments that do not
meet the quantitative thresholds (at this stage only a
majority of the specified criteria must be met). Therefore,
if an operating segment is not a reportable segment because
it does not meet any of the 10 percent threshold criteria in
paragraph 280-10-50-12 and does not meet all of the
aggregation criteria in paragraph 280-10-50-11 with another
segment that does meet at least one of the 10 percent
threshold criteria, it can only be aggregated with segments
that do not meet the 10 percent threshold criteria if a
majority of the aggregation criteria are met. In this Case,
when only a majority of the criteria is met, Segment E could
be aggregated with one or more of Segments A, C, or F but
could not be aggregated with Segments B or D. When all of
the criteria are met, any segments may be aggregated.