5.5 Information About Geographic Areas

ASC 280-10

50-41 A public entity shall report the following geographic information unless it is impracticable to do so (see Example 3, Case D [paragraph 280-10-55-51]):

Revenues from external customers attributed to the public entity’s country of domicile and attributed to all foreign countries in total from which the public entity derives revenues. If revenues from external customers attributed to an individual foreign country are material, those revenues shall be disclosed separately. A public entity shall disclose the basis for attributing revenues from external customers to individual countries.
Long-lived 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 located in the public entity’s country of domicile and located in all foreign countries in total in which the public entity holds assets. If assets in an individual foreign country are material, those assets shall be disclosed separately.

The amounts reported shall be based on the financial information that is used to produce the general-purpose financial statements. If providing the geographic information is impracticable, that fact shall be disclosed. A public entity may wish to provide, in addition to the information required by the preceding paragraph, subtotals of geographic information about groups of countries.

55-24 The geographic information specified by paragraph 280-10-50-41 is required, if material, by country. That paragraph also states, however, that a public entity may always provide, in addition to the information required by this paragraph, subtotals of geographic information about groups of countries, for example, the European Monetary Union.

An entity must meet the disclosure requirements in ASC 280-10-50-41 even if the information in its disclosures is not regularly reviewed or provided to the CODM. This was clarified in ASC 280-10-55-21, which notes:

Unlike other provisions of this Subtopic, in which segment information is disclosed on a management approach basis and, therefore, disclosure of certain items is not required if such amounts are not reviewed by or not included in measures that are reviewed by the chief operating decision maker, supplemental geographic disclosures should be disclosed in accordance with paragraph 280-10-50-41.

The SEC staff has also provided guidance on disclosures about geographic areas in its Current Accounting and Disclosure Issues in the Division of Corporation Finance (updated November 30, 2006), which states:

Information about geographic areas is also required to be disclosed based on countries, both the country of domicile and for foreign countries. If a registrant manages its business by geographic regions and determines its reportable segments accordingly, it still must provide the separate geographic disclosures for each country in which revenues are material. Some registrants provide this disclosure by presenting material countries separately within the subtotals by region.

5.5.1 Materiality of Revenues Attributed to Individual Countries

ASC 280-10

55-20 Paragraph 280-10-50-41 provides requirements for entity-wide disclosure of certain information by geographic areas. If revenues attributed to or assets located in an individual foreign country are material, such amounts are required to be disclosed.

ASC 280 does not specify what is material with regard to the disclosure requirements in ASC 280-10-50-41. Accordingly, an entity’s determination of materiality should be based on the judgment of management and take into account both quantitative and qualitative factors. Paragraph 105 of the Background Information and Basis for Conclusions of FASB Statement 131 states:

Statement 14 requires disclosure of geographic information by geographic region, whereas this Statement requires disclosure of individually material countries as well as information for the enterprise’s country of domicile and all foreign countries in the aggregate. This Statement’s approach has two significant benefits. First, it will reduce the burden on preparers of financial statements because most enterprises are likely to have material operations in only a few countries or perhaps only in their country of domicile. Second, and more important, it will provide information that is more useful in assessing the impact of concentrations of risk. Information disclosed by country is more useful because it is easier to interpret. Countries in contiguous areas often experience different rates of growth and other differences in economic conditions. Under the requirements of Statement 14, enterprises often reported information about broad geographic areas that included groupings such as Europe, Africa, and the Middle East. Analysts and others have questioned the usefulness of that type of broad disclosure.

We believe that disclosures would be required for revenue amounts of greater than 10 percent of consolidated revenue and may be required for lesser amounts if considered material.

5.5.2 Basis of Allocation of Revenue

ASC 280-10

55-22 Paragraph 280-10-50-41 requires disclosure of revenues from external customers attributed to all foreign countries in total from which the public entity derives revenues and separate disclosure of revenues from external customers attributed to an individual foreign country if material. In determining the revenues attributed to foreign countries, a public entity may allocate revenues from external customers to geographic areas in whatever way it chooses (for example, by selling location, customer location, or the location to which the product is transported, which may differ from the location of the customer), as long as that method is reasonable, consistently applied, and disclosed.

ASC 280 does not prescribe how revenues should be allocated, although an entity typically chooses to allocate them on the basis of the location of the customer, the location to which the product was shipped, or the location in which the sale was originated. For example, an entity based in the United States has a subsidiary in the United Kingdom that has sales to a customer in France. As a result, the entity may attribute the revenue to the location of the customer (France) or the location of the selling subsidiary (United Kingdom) as long as such attribution is consistently applied.

ASC 280 also requires disclosure of the basis for attributing revenues to individual countries.

5.5.3 What to Include in Long-Lived Asset Disclosures

ASC 280-10

55-23 This Subtopic does not define what is intended to be included in long-lived assets. In addition, the provisions of this Subtopic allow for flexibility and judgment by the preparer. However, the purpose of the entity-wide disclosures is to provide information about risks and uncertainties in certain geographic areas. One of the reasons for requiring disclosure of long-lived assets in geographic areas as opposed to total assets is that long-lived assets are potentially at greater risk because they are difficult to move and are relatively illiquid. Long-lived assets, as that phrase is used in paragraph 280-10-50-41, implies hard assets that cannot be readily removed, which would exclude intangibles.

ASC 280 does not indicate what constitutes long-lived assets for entity-wide disclosure purposes. However, ASC 280-10-50-41 observes that the disclosures do not include the following:

Financial instruments.
Long-term customer relationships of a financial institution.
Mortgage and other servicing rights.
Deferred policy acquisition costs.
Deferred tax assets.

In addition, ASC 280-10-55-23 clarifies that the term “long-lived assets . . . implies hard assets that cannot be readily removed, which would exclude intangibles.”

While an entity will need to use judgment in determining what assets to disclose, it should carefully consider the principle in ASC 280-10-55-23 that requires it “to provide information about risks and uncertainties in certain geographic areas.” Further, paragraph 104 of the Background Information and Basis for Conclusions of FASB Statement 131 notes the following:

[Analysts] said that information about assets located in different areas assists them in understanding concentrations of risks (for example, political risks such as expropriation).

5.5.4 Considerations for U.S. Territories

Questions may arise about how to treat U.S. territories under the geographic disclosure requirements in ASC 280-10-50-41. The FASB clarified in ASC 280-10-55-25 that:

[T]he degree of interrelationship between the United States and Puerto Rico (as well as non-self-governing U.S. territories such as the Virgin Islands and American Samoa) is such that Puerto Rican operations of U.S. public entities shall be considered domestic operations. Factors such as proximity, economic affinity, and similarities in business environments also indicate this classification for the Puerto Rican operations of U.S. public entities. It should be noted that this Subtopic does not prohibit additional disclosures about Puerto Rican operations that might be useful in analyzing and understanding an entity’s financial statements.

5.5.5 Example of Geographic Disclosures

ASC 280-10

55-51 The following illustrates the geographic information required by paragraph 280-10-50-41. Because Diversified Company’s segments are based on differences in products and services, no additional disclosures of revenue information about products and services are required (see paragraph 280-10-50-40).

Confidential and Proprietary — for Use Solely by Authorized Personnel

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.