5.7 Information About Major Customers
ASC 280-10
50-42 A public entity shall
provide information about the extent of its reliance on its
major customers. If revenues from transactions with a single
external customer amount to 10 percent or more of a public
entity’s revenues, the public entity shall disclose that
fact, the total amount of revenues from each such customer,
and the identity of the segment or segments reporting the
revenues. The public entity need not disclose the identity
of a major customer or the amount of revenues that each
segment reports from that customer. For purposes of this
Subtopic, a group of entities known to a reporting public
entity to be under common control shall be considered as a
single customer, and the federal government, a state
government, a local government (for example, a county or
municipality), or a foreign government each shall be
considered as a single customer (see Example 3, Case E
[paragraph 280-10-55-52]).
ASC 280-10-50-42 requires a public entity to disclose revenues from any single
external customer that equal or exceed 10 percent of the public entity’s revenues.
This disclosure should include the:
-
Total amount of revenues from the customer.
-
Identity of the segment or segments reporting the revenues.
While the name of the customer is not required under ASC 280-10-50-42, SEC
registrants should consider the similar requirements in SEC Regulation S-K, Item
101(c) (see further discussion in Section 7.2).
ASC 280-10-50-42 also clarifies the following regarding performance of the 10
percent test:
-
Determination of the customer is made at the parent level; therefore, a group of entities under common control would be considered a single customer.
-
The federal government is considered one customer. Each individual state government and any foreign government would also be considered a single customer.
Example 5-2
Company A sells products to three
subsidiaries of Company XYZ.
Revenue to each subsidiary of Company XYZ as a percentage of
A’s total revenue is as follows:
To assess whether more than 10 percent of A’s revenue is
derived from a single customer, A would be required to
aggregate the sales to the subsidiaries of XYZ. As a result,
A would report XYZ as a major customer and disclose the
total combined revenues (i.e., 14%) attributable to XYZ, as
well as the segment or segments to which these revenues are
related.
5.7.1 Example of Major Customers Disclosure
ASC 280-10
55-52 The following is an
example of the information about major customers
required by paragraph 280-10-50-42. Neither the identity
of the customer nor the amount of revenues for each
operating segment is required.
Revenues from one customer of Diversified
Company’s software and electronics segments
represents approximately $5,000 of the company’s
consolidated revenues.