Chapter 5 — Entity-Wide Disclosures
Chapter 5 — Entity-Wide Disclosures
5.1 Overview
In addition to the disclosures discussed in Chapter 4 about each reportable segment, ASC 280 requires
disclosure about products and services and geographical operations on an entity-wide basis regardless
of how the entity is organized.
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. However, an entity would not have to repeat the
disclosures if they were 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 must include entity-wide disclosures only in its annual reporting, nothing would preclude
it from providing such information on an interim basis.
5.2 Basis of Presentation for Entity-Wide Disclosures
Entity-wide disclosures should not be based on the financial information used under the management
approach for identifying reportable segments. Rather, the basis used for the entity-wide disclosures
would be the same as that used to produce the U.S. GAAP financial statements and not the segment
footnote (unless each basis happened to be the same). The result is that the entity-wide disclosures
would align with the corresponding amounts in the U.S. GAAP financial statements.
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 inherent risks associated with them.
Further, an entity should consider the disclosure requirements under ASC 606,
which 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.
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. These disclosures
may also be particularly important when the entity has identified a single
reportable segment.
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.
55-24 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).
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 6.2).
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.
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.