Chapter 5 — Entity-Wide Disclosures | DART – Deloitte Accounting Research Tool

Chapter 5 — Entity-Wide Disclosures

5.1 Overview

In addition to disclosures about each reportable segment, which are discussed in Chapter 4 and Chapter 6, ASC 280 requires entity-wide disclosures about the following regardless of how the entity is organized:

Products and services (see Section 5.4).
Geographical areas (see Section 5.5).
Major customers (see Section 5.7).

ASC 280-10

05-5 To provide some comparability between public entities, this Subtopic requires that an entity report certain information about the revenues that it derives from each of its products and services (or groups of similar products and services) and about the countries in which it earns revenues and holds assets, regardless of how the entity is organized. As a consequence, some entities are likely to be required to provide limited information that may not be used for making operating decisions and assessing performance.

50-38 Paragraphs 280-10-50-40 through 50-42 apply to all public entities subject to this Subtopic including those public entities that have a single reportable segment. Some public entities’ business activities are not organized on the basis of differences in related products and services or differences in geographic areas of operations. That is, a public entity’s segments may report revenues from a broad range of essentially different products and services, or more than one of its reportable segments may provide essentially the same products and services. Similarly, a public entity’s segments may hold assets in different geographic areas and report revenues from customers in different geographic areas, or more than one of its segments may operate in the same geographic area. Information required by paragraphs 280-10-50-40 through 50-42 need be provided only if it is not provided as part of the reportable operating segment information required by this Subtopic.

50-39 Entity-wide disclosures are required only for annual reporting.

Entity-wide disclosure requirements apply to every entity that is subject to ASC 280, irrespective of the number of identified operating segments or the basis on which the entity is organized for resource allocation and performance assessment purposes, as noted in paragraph 101 of the Background Information and Basis for Conclusions of FASB Statement 131. However, an entity would not have to repeat the disclosures if they are otherwise provided. For example, if an entity’s operating segments are based on products and services, and revenue for each product or service (or group of similar products and services) is disclosed in the reportable segments disclosure, this information need not be repeated in the entity-wide disclosures.

However, if an entity manages its business on the basis of geographic regions and determines its reportable segments accordingly, it still must provide separate geographic disclosures for each country in which revenues are material. Some entities provide this disclosure by presenting material countries separately from subtotals by region. See further discussion in Section 5.5.1.

Key Takeaways

Entity-wide disclosures are intended to ensure some level of comparability across entities, regardless of how these entities are managed or resources are allocated. Accordingly, an entity should carefully consider the objectives and principles of ASC 280 when evaluating the disclosure requirements.
Disclosure of information about products and services will be particularly important when an entity has identified a single operating segment.

5.1.1 Annual Presentation

While an entity is only required to include entity-wide disclosures in its annual reporting, nothing would preclude it from voluntarily providing such information on an interim basis.

5.2 Basis of Presentation for Entity-Wide Disclosures

Entity-wide disclosures are not based on the financial information used under the management approach for identifying reportable segments. Rather, the basis used for the entity-wide disclosures is the same as that used to produce the U.S. GAAP financial statements and not the segment footnote (unless each basis happens to be the same). The result is that the entity-wide disclosures align with the corresponding amounts in the U.S. GAAP financial statements. For example, revenue reported under the entity-wide disclosure requirements should reconcile to the consolidated revenue U.S. GAAP amount.

5.3 Combination With Other Disclosure Requirements

An entity may combine entity-wide disclosures with those required by other pronouncements if doing so would benefit financial statement users. For instance, combining disclosure of risks and uncertainties required by ASC 275 related to concentrations of customers, products or services, or geographic area with entity-wide disclosures in ASC 280 could result in a seamless presentation of these amounts and the related inherent risks, provided that the entity-wide disclosures meet the requirements in ASC 280-10-50-39 through 50-42.

Further, ASC 606 requires entities to disclose revenue by disaggregating it into categories “that depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors” (for more information, see Chapter 15 of Deloitte’s Roadmap Revenue Recognition). While entity-wide disclosures are only required in annual financial statements, ASC 270-10-50-1(i) requires entities to disclose the following in their interim financial statements:

All of the following information about reportable operating segments determined according to the provisions of Topic 280, including provisions related to restatement of segment information in previously issued financial statements:

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 measurement of segment profit or loss
A reconciliation of the total of the reportable segments’ measures of profit or loss to the entity’s consolidated income before income taxes and discontinued operations. However, if, for example, an entity allocates items such as income taxes to segments, the 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.

5.4 Information About Products and Services

ASC 280-10

50-40 A public entity shall report the revenues from external customers for each product and service or each group of similar products and services unless it is impracticable to do so. The amounts of revenues reported shall be based on the financial information used to produce the public entity’s general-purpose financial statements. If providing the information is impracticable, that fact shall be disclosed.

As noted in Section 5.1, an entity that bases its segments on products and services will generally not have to repeat the entity-wide disclosures of revenue by product and service since it would have disclosed revenue from external customers as part of its segment disclosures in accordance with ASC 280-10-50-22 (see Section 4.3 for further discussion). However, when a range of products and services is provided by a reportable segment, an entity should consider whether these products and services are sufficiently similar that additional disclosure would not be needed to meet the requirements in ASC 280-10-50-40. Such additional disclosures may also be particularly important when the entity has identified a single reportable segment.

Example 5-1

Company A has determined that it has three reportable segments that are based on the following geographies: America, Europe, and the rest of world. Company A’s two product lines are sold in all three geographic segments, but its two service lines are provided only in the America and Europe segments.

Even though its reportable segments are based on geography, A is still required to disclose the amount of revenue attributable to its products and service lines for the entity as a whole. Therefore, A would disclose that it sells two product lines in all three segments and provides two service lines in the America and Europe segments.

ASC 280 does not provide further guidance on evaluating whether a group of products or services is similar for disclosure purposes. We believe that an entity may look to the aggregation criteria in ASC 280-10-50-11 to determine whether groups of products or services are similar.

The SEC staff has also provided guidance on determining whether groups of products and services are similar in its Current Accounting and Disclosure Issues in the Division of Corporation Finance (updated November 30, 2006), which states:

Registrants should remember to identify the products and services from which each reportable segment derives its revenues, and to report the total revenues from external customers for each product or service or each group of similar products and services. Disclosures for products and services that are not substantially similar must be disaggregated. The staff has objected to overly broad views of what constitutes similar products. In its assessment of whether dissimilar products have been aggregated, the staff may review public disclosures and marketing materials that describe the registrant’s products.

In addition, paragraph 68 of the Background Information and Basis for Conclusions of FASB Statement 131 states, in part:

An enterprise with a relatively narrow product line may not consider two products to be similar, while an enterprise with a broad product line may consider those same two products to be similar. For example, a highly diversified enterprise may consider all consumer products to be similar if it has other businesses such as financial services and road construction. However, an enterprise that sells only consumer products might consider razor blades to be different from toasters.

When complying with the disclosure guidance in ASC 280-10-50-40, entities should be aware that the SEC staff has objected to the presentation of entity-wide disclosures that are determined to be based on individually tailored accounting principles. See Section 4.3.3 of Deloitte’s Roadmap Non-GAAP Financial Measures and Metrics for further discussion of individually tailored accounting principles.

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.

55-21 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.

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.

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.

The following graphic depicts the information that an entity is required to provide about geographic areas under ASC 280-10-50-41:

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 of geographic information would be required for revenue amounts of greater than 10 percent of consolidated revenue and may be required for lesser amounts if considered material. That is, certain countries may present more risk than other countries, and the determination of whether revenue from a specific country is material is a matter of judgment and should be based on careful consideration of the entity’s particular facts and circumstances. In the example in ASC 280-10-55-51 (which is reproduced in Section 5.5.5), the entity discloses revenues by a country (i.e., Japan) that represents slightly less than 10 percent of its consolidated revenue.

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, assume that an entity based in the United States has a subsidiary in the United Kingdom that has sales to a customer in France. In such a case, 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.

While ASC 280 does not define the term “long-lived assets” for entity-wide disclosure purposes, ASC 280-10-55-23 states that “[l]ong-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.” Therefore, the meaning of the term long-lived assets in ASC 280 for entity-wide disclosure purposes is different from the meaning of that term in ASC 360, which includes finite-lived intangible assets. In addition, ASC 280-10-50-41 observes that entity-wide disclosures are not required forthe following long-lived assets:

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

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

ASC 280-10

55-25 With regard to reporting geographic information as discussed in paragraph 280-10-50-41, the 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.

ASC 280-10-55-25 clarifies that while an entity is not precluded from disclosing geographic information about Puerto Rico (“as well as non-self-governing U.S. territories such as the Virgin Islands and American Samoa”), “Puerto Rican operations of U.S. public entities [may] be considered domestic operations.”

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).

5.6 Impracticability

The entity-wide disclosure requirements in ASC 280-10-50-40 for products and services, and those in ASC 280-10-50-41 for geographic information, include an impracticability exception. If, after careful consideration, an entity determines that providing the disclosures would be impracticable, an entity should disclose that fact. However, while the SEC staff has accepted registrants’ assertions of impracticability, use of the exception is expected to be unusual and infrequent. Accordingly, an entity should have a reasonable basis for asserting that the disclosures are impracticable and should periodically reassess this assertion.

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.

5.8 Recasting of Entity-Wide Disclosures

ASC 280 does not provide guidance on whether recasting of prior-period entity-wide disclosures is necessary when there is a change in the segments in the current year, as compared with those provided in prior periods. We believe that an underlying principle in ASC 280 is to reflect segment information on a comparable basis and, therefore, we believe that it is appropriate to recast prior periods to conform with current-period disclosures.