Chapter 4 — Disclosure Requirements
Chapter 4 — Disclosure Requirements
4.1 Overview
ASC 280 requires both quantitative and qualitative disclosures for each reportable segment. Generally,
these disclosures are provided for each period presented. The disclosure requirements in ASC 280 for
each reportable segment can be categorized as follows:
- General information (see Section 4.2).
- Information about profit or loss and assets (see Section 4.3).
- Reconciliations (see Section 4.5).
In accordance with the management approach, the disclosures for each reportable segment should be
consistent with the information provided to the CODM (see further discussion in Section 4.4).
In addition to disclosures for each reportable segment, an entity must provide certain entity-wide
information (see further discussion in Chapter 5).
Key Takeaways
- Disclosure of the factors used to identify reportable segments and the basis of organization of the entity give financial statement users important context regarding the management approach to segment disclosures. Such disclosures are particularly important when an entity is organized as a single operating segment.
- The measure of profit or loss disclosed for each reportable segment should be the measure used by the CODM to assess performance and allocate resources. This measure may vary by reportable segment.
- When there has been a change in reportable segments, corresponding information for earlier periods, including interim periods, must be restated unless restatement is impracticable.
- Although an entity is not required to restate its financial information to reflect a change in measurement of segment profit and loss, presentation of all segment information on a comparable basis is preferable if it is practicable.
4.2 General Information
ASC 280-10
50-21 A public entity shall
disclose the following general information (see Example 3,
Case A [paragraph 280-10-55-47]):
-
Factors used to identify the public entity’s reportable segments, including the basis of organization (for example, whether management has chosen to organize the public entity around differences in products and services, geographic areas, regulatory environments, or a combination of factors and whether operating segments have been aggregated)
-
Types of products and services from which each reportable segment derives its revenues.
An entity must disclose the factors used in the identification of reportable segments as well as the types
of products and services from which each reportable segment derives its revenue. Its disclosures should
include how management has chosen to organize its business (i.e., by product or service or geography)
and whether operating segments have been aggregated. Disclosure about the basis of organization is an
important aspect of the management approach to segment reporting because it provides insights into
how management has organized the business.
4.2.1 Reporting Considerations for Entities With a Single Reportable Segment
An entity should disclose a single reportable segment if it is (1) organized as a single operating segment
or (2) organized as more than one operating segment and (a) elects to aggregate into a single operating
segment and (b) meets the criteria for such aggregation (see Section 3.2 for a discussion of aggregation).
The SEC staff continues to stress the importance of the disclosure requirement related to the entity’s
basis of organization, particularly when an entity is organized as a single operating segment. At the 2015
AICPA Conference on Current SEC and PCAOB Developments, staff from the SEC’s OCA observed the
following:
At times, application of the guidance will result in identification of a single operating segment. When
such identification is consistent with the guidance, it can be a significant signal to investors about how
management has allocated resources. Upon arriving at this conclusion, registrants should disclose that
they allocate resources and assess financial performance on a consolidated basis and should explain the
basis for that management approach. It would seem counter to the objectives of segment reporting if the
business description indicates the entity is diversified across businesses or products, yet is not managed in a
disaggregated way. [Footnote omitted]
An entity with more than one reportable segment is required to disclose, for each reportable segment, the measure of profit or loss used by the CODM to assess performance and allocate resources. See Section 4.3 for additional discussion of segment disclosures.
In some cases, entities with only one reportable segment have disclosed in the
notes to their financial statements financial information for which the
measurement basis differs from that used in their consolidated financial
statements. The SEC staff has challenged such disclosures as being inconsistent
with the objective of ASC 280, even if the measures were reviewed by the CODM or
the entity's disclosure is argued to be beneficial to readers (e.g., EBITDA for
the entity as a whole or for portions of the entity). Further, as noted by the
staff at the 2016 AICPA Conference on Current SEC and PCAOB Developments, the
presentation of such measures outside of the financial statements (e.g., in
MD&A) would be within the scope of the SEC’s guidance on non-GAAP measures
since the disclosure is not required by U.S. GAAP. See Section 6.4 for
additional discussion of non-GAAP measures.
4.3 Information About Profit or Loss and Assets for Each Reportable Segment
ASC 280-10
50-22 A public entity shall
report a measure of profit or loss and total assets for each
reportable segment. A public entity also shall disclose all
of the following about each reportable segment if the
specified amounts are included in the measure of segment
profit or loss reviewed by the chief operating decision
maker or are otherwise regularly provided to the chief
operating decision maker, even if not included in that
measure of segment profit or loss (see Example 3, Case B
[paragraph 280-10-55-48]):
-
Revenues from external customers
-
Revenues from transactions with other operating segments of the same public entity
-
Interest revenue
-
Interest expense
-
Depreciation, depletion, and amortization expense
-
Unusual items as described in paragraph 220-20-45-1
-
Equity in the net income of investees accounted for by the equity method
-
Income tax expense or benefit
-
Subparagraph superseded by Accounting Standards Update No. 2015-01
-
Significant noncash items other than depreciation, depletion, and amortization expense.
A public entity shall report interest revenue separately from interest expense for each reportable segment
unless a majority of the segment’s revenues are from interest and the chief operating decision maker relies
primarily on net interest revenue to assess the performance of the segment and make decisions about
resources to be allocated to the segment. In that situation, a public entity may report that segment’s interest
revenue net of its interest expense and disclose that it has done so.
50-23 Disclosure of interest revenue and interest expense included in reported segment profit or loss is
intended to provide information about the financing activities of a segment.
50-24 If a segment is primarily a financial operation, interest revenue probably constitutes most of segment
revenues and interest expense will constitute most of the difference between reported segment revenues
and reported segment profit or loss. If the segment has no financial operations or only immaterial financial
operations, no information about interest is required.
An entity must present a measure of profit or loss for each reportable segment.
This measure may vary by reportable segment. See Section 4.4 for further discussion of the
measurement of segment disclosures.
Further, ASC 280-10-50-22 outlines additional amounts that should be disclosed
if they are included in the segment measure of profitability reviewed by the CODM or
are otherwise provided to the CODM. An entity should therefore carefully consider
what kind of information is regularly provided to the CODM. ASC 280-10-55-15 states,
in part:
[T]he segment profit or loss amounts listed in
paragraph 280-10-50-22 are required if they are included in the measure of
segment profit or loss that is used by the chief operating decision maker or if
they are otherwise regularly provided to the chief operating decision maker,
even if not included in that measure. Disclosure of those amounts is required
even though they may not be included in the measure of segment profit or loss or
in the determination of segment assets, as applicable, that is reviewed by the
chief operating decision maker.
Example 4-1
Company A has identified two reportable segments: retail operations and
wholesale operations. The measure of profitability used by
the CODM is EBITDA. In reviewing the monthly reporting
package, the CODM receives information about revenue from
external customers and EBITDA by reportable segment. The
CODM also receives a schedule of intersegment revenue by
reportable segment as well as summaries of depreciation and
amortization expense related to each segment. As a result, A
would disclose revenue from external customers, intersegment
revenue, depreciation and amortization, and EBITDA by
reportable segment. Since the other items listed in ASC
280-10-50-22 are not included in the EBITDA profitability
measure or otherwise regularly provided to the CODM, A would
not be required to disclose them for each reportable
segment.
4.3.1 Interest Revenue and Interest Expense
Generally, interest revenue should be reported separately from interest expense.
The disclosure requirements are intended to elicit some information about the
reportable segment’s financing activities. However, under an exception in ASC
280-10-50-22, net interest revenue may be disclosed when “a majority of the
segment’s revenues are from interest and the chief operating decision maker
relies primarily on net interest revenue to assess the performance of the
segment and make decisions about resources to be allocated to the segment.” In
such instances, the entity should also disclose that interest revenue is
presented net of interest expense. Paragraph 95 of the Background Information and Basis for Conclusions of FASB Statement 131 further clarifies,
stating,
in part:
The Board decided that segments that derive a
majority of revenue from interest should be permitted to disclose net
interest revenue instead of gross interest revenue and gross interest
expense if management finds that amount to be more relevant in managing the
segment. Information about interest is most important if a single segment
comprises a mix of financial and nonfinancial operations. If a segment is
primarily a financial operation, interest revenue probably constitutes most
of segment revenues and interest expense will constitute most of the
difference between reported segment revenues and reported segment profit or
loss. If the segment has no financial operations or only immaterial
financial operations, no information about interest is required.
In addition, an entity should consider interest expense and interest income on
intersegment transactions. ASC 280-10-55-11 states, in part:
For internal reporting purposes, if interest expense is charged to a
segment on advances from another segment and the interest is included in the
measure of performance, the amounts of interest expense and interest income
shall include the amounts charged internally between the segments.
4.3.2 Specific Asset Information for Each Reportable Segment
ASC 280-10
50-25 A public entity shall disclose both of the following about each reportable segment if the specified
amounts are included in the determination of segment assets reviewed by the chief operating decision
maker or are otherwise regularly provided to the chief operating decision maker, even if not included in the
determination of segment assets:
- The amount of investment in equity method investees
- Total expenditures for additions to long-lived assets other than any of the following (see Example 3, Case B [paragraph 280-10-55-48]):
-
Financial instruments
-
Long-term customer relationships of a financial institution
-
Mortgage and other servicing rights
-
Deferred policy acquisition costs
-
Deferred tax assets.
-
50-26 If no asset information is provided for a reportable segment, that fact and the reason therefore shall be
disclosed.
In some situations, the CODM receives no asset information by reportable segment
or receives asset information unrelated to the items listed in ASC 280-10-50-25.
The disclosure requirements for the specific asset information listed in ASC
280-10-50-25 are applicable only when the specified amounts are included in the
segment assets reviewed by the CODM or the CODM receives such information.
4.4 Measurement of Segment Disclosures
ASC 280-10
50-27 The amount of each segment item reported shall be the measure reported to the chief operating
decision maker for purposes of making decisions about allocating resources to the segment and assessing
its performance. Adjustments and eliminations made in preparing a public entity’s general-purpose financial
statements and allocations of revenues, expenses, and gains or losses shall be included in determining
reported segment profit or loss only if they are included in the measure of the segment’s profit or loss that is
used by the chief operating decision maker. Similarly, only those assets that are included in the measure of
the segment’s assets that is used by the chief operating decision maker shall be reported for that segment.
If amounts are allocated to reported segment profit or loss or assets, those amounts shall be allocated on a
reasonable basis.
Under the management approach prescribed in ASC 280-10-50-27, the amount of each
segment item reported is the measure used by the CODM to assess performance and allocate resources. This notion is further articulated in paragraph 81 of the Background Information and Basis for Conclusions of FASB Statement 131, which states, in part:
The Board decided that the information to be reported about each segment should be
measured on the same basis as the information used by the chief operating decision maker
for purposes of allocating resources to segments and assessing segments’ performance. . .
. The Board does not think that a separate measure of segment profit or loss or assets
should have to be developed solely for the purpose of disclosing segment information. For
example, an enterprise that accounts for inventory using a specialized valuation method
for internal purposes should not be required to restate inventory amounts for each
segment, and an enterprise that accounts for pension expense only on a consolidated basis
should not be required to allocate pension expense to each operating segment.
Note that financial measures that a registrant must disclose under U.S. GAAP are not
considered non-GAAP measures under the SEC’s guidance (see Section 6.4 for further discussion). However, the SEC staff has objected to
the reporting of segment items determined to be based on individually tailored accounting
principles (see Section 4.3.3 of Deloitte’s Roadmap
Non-GAAP Financial Measures and Metrics).
See Section 4.2.1 for a discussion of reporting
considerations for entities with a single reportable segment.
4.4.1 Allocation of Items to Reportable Segments
ASC 280 does not require an entity to allocate to a reportable segment items that are not directly
linked to that segment unless the entity allocates them as part of preparing the reports used by the
CODM. Examples of such items include costs associated with (1) entity-wide employee benefit plans or
(2) income taxes when the entity files a consolidated income tax return. If items are allocated for use by
the CODM, the amounts included in the segment disclosures should reflect these allocations.
For example, an entity that reports interest expense only on a consolidated basis would not include an
interest expense amount in the segment footnote. Conversely, if interest expense were allocated to the
various segments in the reports used by the CODM, such amounts should be included in the segment
footnote. Any unallocated amounts, if material, should be reported in the required reconciliation to the
consolidated amounts.
Although U.S. GAAP does not provide guidance on allocation methods, any allocation made for segment
reporting purposes must be reasonable. For example, allocating computer department costs to a
department that does not use computers, or allocating excessive costs to a particular segment, would
not appear to be reasonable. In addition, the nature of any allocations to an operating segment should
be disclosed.
4.4.2 Multiple Measures Used by the CODM
ASC 280-10
50-28 If the chief operating decision maker uses only one measure of a segment’s profit or loss and only one
measure of a segment’s assets in assessing segment performance and deciding how to allocate resources,
segment profit or loss and assets shall be reported at those measures. If the chief operating decision maker
uses more than one measure of a segment’s profit or loss and more than one measure of a segment’s assets,
the reported measures shall be those that management believes are determined in accordance with the
measurement principles most consistent with those used in measuring the corresponding amounts in the
public entity’s consolidated financial statements.
55-9 If a public entity uses
multiple performance measures in evaluating segment
performance and allocating assets, the reported measures
shall be those that management believes are determined
in accordance with the measurement principles most
consistent with those used in measuring the
corresponding amounts in the public entity’s
consolidated financial statements (see paragraphs
280-10-50-27 through 50-29). Preparing segment
information in accordance with the GAAP used at the
consolidated level would be difficult because some GAAP
are not intended to apply at a segment level. Examples
include accounting for income taxes in a public entity
that files a consolidated income tax return.
55-10 Entities may use multiple performance measures in evaluating segment performance and allocating
resources including both pretax and after-tax measures. Because it may not always be practicable to apply
GAAP relating to income taxes to the segment level, after-tax segment measures are not typically in accordance
with GAAP. Therefore, either a pretax or after-tax measure could be used for reporting segment information,
with disclosure of the difference in measurement principles for determining taxes, if an after-tax measure
is used. However, if the after-tax measures are determined on the same basis as the consolidated financial
statements, the after-tax measure would be the preferable measure of segment profit or loss to report.
Sometimes the CODM may receive a profit or loss metric for internal reporting purposes whose
measurement basis is different from the one used in the consolidated financial statements. For
example, an entity may “add back” deferred revenue in reporting revenue and gross margin to the
CODM for internal reporting purposes. If the measure of profit or loss is the only one reported to the
CODM, that amount would be disclosed for each reportable segment.
In other instances, multiple measures of profit or loss or assets may be used by
the CODM. In such cases, the measures presented should be those that most
closely reflect the measurement principle applied to the consolidated financial
statements. For example, if the CODM receives revenue and gross margin with and
without the deferred revenue adjustment, ASC 280-10-50-28 requires that the
disclosed measure be the one without the deferred revenue adjustment since it
would be the measure closest to the measures used in the U.S. GAAP–based
consolidated financial statements.
Example 4-2
Company A operates a chain of grocery stores and uses the LIFO method to calculate inventory and cost of
goods sold for financial reporting purposes. However, since the reports provided to the CODM use the FIFO
method to evaluate performance of segment operations, A may use LIFO for U.S. GAAP financial reporting and
FIFO for operating segment reporting.
Example 4-3
EBITDA is the measure of segment profit or loss that Company A uses to evaluate performance and make
decisions about the allocation of resources. Company A also provides the CODM with a full reconciliation of
EBITDA to net income by segment.
Accordingly, A would not be permitted to use EBITDA as its sole measure of
profit or loss in its segment disclosures. When the CODM
receives all the reconciling items that separate, by
segment, EBITDA from net income and a total for net
income (i.e., a full reconciliation to net income), it
is assumed that the CODM uses that information to assess
performance and allocate resources. As stated in ASC
280-10-50-28, if more than one measure of a segment’s
profit or loss is reported, the measure that should be
reported in the segment disclosure is the one that is
most consistent with U.S. GAAP. In A’s case, net income
would appear to be that measure.
However, use of EBITDA as the sole measure of segment profit or loss may be appropriate if a full reconciliation
of EBITDA to net income by segment is not provided to the CODM. For example, if the CODM receives a
partial reconciliation that includes only depreciation, amortization, and interest expense, the use of EBITDA for
segment reporting purposes would appear to be appropriate.
4.4.3 Explanation of Segment Profit or Loss and Segment Assets
ASC 280-10
50-29 A public entity shall
provide an explanation of the measurements of segment
profit or loss and segment assets for each reportable
segment. At a minimum, a public entity shall disclose
all of the following (see Example 3, Cases A through C
[paragraphs 280-10-55-47 through 55-49]):
-
The basis of accounting for any transactions between reportable segments.
-
The nature of any differences between the measurements of the reportable segments’ profits or losses and the public entity’s consolidated income before income taxes and discontinued operations (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). Those differences could include accounting policies and policies for allocation of centrally incurred costs that are necessary for an understanding of the reported segment information.
-
The nature of any differences between the measurements of the reportable segments’ assets and the public entity’s consolidated assets (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). Those differences could include accounting policies and policies for allocation of jointly used assets that are necessary for an understanding of the reported segment information.
-
The nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss and the effect, if any, of those changes on the measure of segment profit or loss.
-
The nature and effect of any asymmetrical allocations to segments. For example, a public entity might allocate depreciation expense to a segment without allocating the related depreciable assets to that segment.
4.4.4 Proportionate Consolidation Used to Measure Performance of an Equity Investee
ASC 280-10
55-8 In measuring the
performance of its equity investees, proportionate
consolidation shall be used for reporting segment
information if that is the way in which such information
is reviewed by the chief operating decision maker. . . .
If proportionate consolidation is used for segment
reporting, this Subtopic also requires disclosure of the
accounting policy followed for segment reporting (see
paragraph 280-10-50-29(b)), the elimination of the
investee’s revenues and assets in reconciling to
consolidated results (see paragraphs 280-10-50-30
through 50-31), and the investment in and equity income
from the investee (see paragraphs 280-10-50-22(g) and
280-10-50-25(a)). Even though the proportionate
consolidation method may be used for internal reporting
purposes (and thus for external reporting of segment
information), that method is not permitted for purposes
of preparing general-purpose financial statements in
accordance with generally accepted accounting principles
(GAAP) except where it is established industry practice
(for example, in some oil and gas venture
accounting).
4.5 Reconciliations
ASC 280-10
50-30 A public entity shall
provide reconciliations of all of the following (see Example
3, Case C [paragraphs 280-10-55-49 through 55-50]):
-
The total of the reportable segments’ revenues to the public entity’s consolidated revenues.
-
The total of the reportable segments’ measures of profit or loss to the public entity’s consolidated income before income taxes and discontinued operations. However, if a public entity allocates items such as income taxes to segments, the public entity may choose to reconcile the total of the segments’ measures of profit or loss to consolidated income after those items.
-
The total of the reportable segments’ assets to the public entity’s consolidated assets.
-
The total of the reportable segments’ amounts for every other significant item of information disclosed to the corresponding consolidated amount. For example, a public entity may choose to disclose liabilities for its reportable segments, in which case the public entity would reconcile the total of reportable segments’ liabilities for each segment to the public entity’s consolidated liabilities if the segment liabilities are significant.
50-31 All significant reconciling items shall be separately identified and described. For example, the amount of
each significant adjustment to reconcile accounting methods used in determining segment profit or loss to the
public entity’s consolidated amounts shall be separately identified and described.
Reconciliations for income statement amounts should be performed for each period
presented. However, as noted in ASC 280-10-50-20, “reconciliations of balance sheet
amounts for reportable segments to consolidated balance sheet amounts are required
only for each year for which a balance sheet is presented.”
4.6 Cash Flow Information
ASC 280-10
45-1 This Subtopic does not
require that a public entity report segment cash flow.
However, paragraphs 280-10-50-22 and 280-10-50-25 require
that a public entity report certain items that may provide
an indication of the cash-generating ability or cash
requirements of an entity’s operating segments.
As noted in paragraph 94 of the Background Information and Basis for Conclusions of FASB Statement 131:
The Board decided to require disclosure of significant noncash items included in the measure of segment profit
or loss and information about total expenditures for additions to long-lived segment assets (other than financial
instruments, long-term customer relationships of a financial institution, mortgage and other servicing rights,
deferred policy acquisition costs, and deferred tax assets) if that information is reported internally because it
improves financial statement users’ abilities to estimate cash-generating potential and cash requirements of
operating segments.
4.7 Comprehensive Example
ASC 280-10-55-46 through 55-50 illustrate the disclosures outlined in ASC
280.
ASC 280-10
Example 3: Illustrative Disclosures
55-46 . . . The following Cases are for a single hypothetical public entity referred to as Diversified Company.
Case A: Disclosure of Descriptive Information About Reportable Segments
55-47 The following is an example of the disclosure of descriptive information about a public entity’s reportable
segments. (References to paragraphs in which the relevant requirements appear are given in parentheses.)
- Description of the types of products and services from which each reportable segment derives its revenues (see paragraph 280-10-50-21(b)).Diversified Company has five reportable segments: auto parts, motor vessels, software, electronics, and finance. The auto parts segment produces replacement parts for sale to auto parts retailers. The motor vessels segment produces small motor vessels to serve the offshore oil industry and similar businesses. The software segment produces application software for sale to computer manufacturers and retailers. The electronics segment produces integrated circuits and related products for sale to computer manufacturers. The finance segment is responsible for portions of the company’s financial operations including financing customer purchases of products from other segments and real estate lending operations in several states.
- Measurement of segment profit or loss and segment assets (see paragraph 280-10-50-29).The accounting policies of the segments are the same as those described in the summary of significant accounting policies except that pension expense for each segment is recognized and measured on the basis of cash payments to the pension plan. Diversified Company evaluates performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses and foreign exchange gains and losses.
- Diversified Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices.
- Factors management used to identify the public entity’s reportable segments (see paragraph 280-10-50-21(a)).Diversified Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Most of the businesses were acquired as a unit, and the management at the time of the acquisition was retained.
Case B: Information About Reported Segment Profit or Loss and Segment Assets
55-48 The following table
illustrates a suggested format for presenting information
about reported segment profit or loss and segment assets
(see paragraphs 280-10-50-22 and 280-10-50-25). The same
type of information is required for each year for which an
income statement is presented. Diversified Company does not
allocate income taxes or unusual items to segments. In
addition, not all segments have significant noncash items
other than depreciation and amortization in reported profit
or loss. The amounts in this Example are assumed to be the
amounts in reports used by the chief operating decision
maker.
Case C: Reconciliations of Reportable
Segment Revenues, Profit or Loss, and Assets, to the
Consolidated Totals
55-49 The following are examples of
reconciliations of reportable segment revenues, profit or
loss, and assets, to the public entity’s consolidated totals
(see paragraph 280-10-50-30(a) through (c)). Reconciliations
also are required to be shown for every other significant
item of information disclosed (see paragraph
280-10-50-30(d)). For example, if Diversified Company
disclosed segment liabilities, they are required to be
reconciled to total consolidated liabilities. The public
entity’s financial statements are assumed not to include
discontinued operations. As discussed in the illustration in
paragraph 280-10-55-47, the public entity recognizes and
measures pension expense of its segments based on cash
payments to the pension plan, and it does not allocate
certain items to its segments.
55-50 The reconciling item to adjust expenditures for assets is the amount of expenses incurred for the
corporate headquarters building, which is not included in segment information. None of the other adjustments
are significant.
4.8 Interim Period Information
ASC 280-10
50-32 A public entity shall disclose all of the following about each reportable segment in condensed financial
statements of interim periods:
- Revenues from external customers
- Intersegment revenues
- A measure of segment profit or loss
- Total assets for which there has been a material change from the amount disclosed in the last annual report
- A description of differences from the last annual report in the basis of segmentation or in the basis of measurement of segment profit or loss
- A reconciliation of the total of the reportable segments’ measures of profit or loss to the public entity’s consolidated income before income taxes and discontinued operations. However, if a public entity allocates items such as income taxes to segments, the public entity may choose to reconcile the total of the segments’ measures of profit or loss to consolidated income after those items. Significant reconciling items shall be separately identified and described in that reconciliation.
50-33 Interim disclosures are
required for the current quarter and year-to-date amounts.
Paragraph 270-10-50-1 states that when summarized financial
data are regularly reported on a quarterly basis, the
information in the previous paragraph with respect to the
current quarter and the current year-to-date or the last 12
months to date should be furnished together with comparable
data for the preceding year.
4.9 Restatement of Segment Data Because of Change in Reportable Segments
ASC 280-10
50-34 If a public entity changes the structure of its internal organization in a manner that causes the
composition of its reportable segments to change, the corresponding information for earlier periods, including
interim periods, shall be restated unless it is impracticable to do so. Accordingly, a public entity shall restate
those individual items of disclosure that it can practicably restate but need not restate those individual items,
if any, that it cannot practicably restate. Following a change in the composition of its reportable segments, a
public entity shall disclose whether it has restated the corresponding items of segment information for earlier
periods.
50-34A For example, a fundamental reorganization of an entity may cause it to be very difficult and expensive
to restate segment information and therefore it may not be practicable.
Unless restatement is impracticable, an entity must restate prior-period segment data when there has
been a change in the composition of the entity’s reportable segments. Such a change could result from
a revamping of the internal management structure that leads to the identification of new or different
operating segments, as discussed in Section 2.10. Restatement of prior segment data would also be
required when an operating segment is identified as a new reportable segment in the current period on
the basis of quantitative thresholds, as discussed in Chapter 3.
Paragraph 100 of the Background Information and Basis for Conclusions of FASB Statement 131 observes, in part:
The Board decided to require restatement of previously reported segment information following a change in
the composition of an enterprise’s segments unless it is impracticable to do so. Changes in the composition of
segments interrupt trends, and trend analysis is important to users of financial statements.
The information in the segment footnote should be presented consistently for all
periods. Therefore, unless restatement is
impracticable, prior-period segment data presented
for comparative purposes for an operating segment
that is identified as a reportable segment in the
current period should be restated to reflect the
newly reportable segment as a separate segment.
See the next section for further discussion of the
impracticability exception.
Also see Section 6.5 for additional information on implications of retrospective changes in reportable
segments.
4.9.1 Disclosure When Restatement of Earlier Periods Is Impracticable
ASC 280-10
50-35 If a public entity has changed the structure of its internal organization in a manner that causes the
composition of its reportable segments to change and if segment information for earlier periods, including
interim periods, is not restated to reflect the change, the public entity shall disclose in the year in which the
change occurs segment information for the current period under both the old basis and the new basis of
segmentation unless it is impracticable to do so.
If restatement of earlier-period segment information is impracticable, an entity must provide current-period
segment information under both the old basis and new basis of segmentation for the year in
which the change occurs. Such information would not be required if it is impracticable to provide it.
However, an entity that determines that it would be impracticable to present the segment information
under both the old basis and new basis should be prepared to demonstrate and support that
conclusion with adequate documentation.
Situations in which it is impracticable to restate earlier-period operating segment disclosures are
expected to be unusual.
4.9.2 Change in Measure of Segment Profit or Loss
ASC 280-10
50-36 Although restatement is
not required to reflect a change in measurement of
segment profit and loss, it is preferable to show all
segment information on a comparable basis to the extent
it is practicable to do so. If prior years’ information
is not restated, paragraph 280-10-50-29(d) nonetheless
requires disclosure of the nature of any changes from
prior periods in the measurement methods used to
determine reported segment profit or loss and the
effect, if any, of those changes on the measure of
segment profit or loss.
4.9.3 Restatement of Prior Periods Because of the Disposal of Part of an Operating Segment
ASC 280-10
55-7 If a reportable segment
meets the conditions in paragraphs 205-20-45-1A through
45-1G to be reported in discontinued operations, an
entity is not required to also disclose the information
required by this Subtopic. Paragraph 280-10-55-19
addresses whether there is a need to restate previously
reported information if there is a disposal of a
component that was previously disclosed as a reportable
segment.
55-19 Segment information for
prior periods for disposal of a component that was
previously disclosed as a reportable segment is not
required to be restated. However, if the income
statement and balance sheet information for the
discontinued component have been reclassified in
comparative financial statements, the segment
information for the discontinued component need not be
provided for those years. Paragraph 280-10-55-7
addresses disclosure requirements if a component of a
public entity that is reported as a discontinued
operation is a reportable segment.
ASC 205-20 provides guidance for determining whether a disposal group should be presented as
a discontinued operation in the income statement. A discontinued operation may be a reportable
segment, an operating segment, or a component of an operating segment.
ASC 280-10-55-7 notes that when the discontinued operation is a reportable
segment, an entity is not required to separately disclose information for the
discontinued operation within the segment footnote. However, if the discontinued
operation is only a component of a reportable segment, the entity should not
include the discontinued operation in the disclosures for the reportable segment
but should restate prior periods, beginning in the period in which the component
is presented as a discontinued operation.
We believe that the failure of a disposal to meet the criterion to be presented as a discontinued
operation would not be considered a change in an entity’s internal organization that causes the
composition of its reportable segments to change. Accordingly, prior periods would not need to be
restated.
Example 4-4
Company A has identified the following reportable segments: computer hardware, computer software, and
customer service. Before year-end, A disposed of a portion of its computer hardware segment, and the
disposal does not meet the criterion to be presented as a discontinued operation.
In preparing the current-year segment disclosures, A is not required to restate prior-period segment
information to remove the portion of the computer hardware segment disposed of before year-end or to
quantify the effect in the segment footnote.
4.9.4 Changes After Year-End but Before the Financial Statements Are Issued
The SEC staff made the following observation in its Current Accounting and Disclosure Issues in the
Division of Corporation Finance (updated November 30, 2006) related to what happens when an entity
changes its internal structure after year-end but before the financial statements are issued:
If management changes the structure of its internal organization after fiscal year end, or intends to make a
change, the new segment structure should not be presented in financial statements until operating results
managed on the basis of that structure are reported. Disclosures based on the historical reportable segments
should be presented until financial statements for periods managed on the basis of the new organizational
structure are presented. However, supplemental disclosure of the future effects of the changes may be useful.