Segment Reporting and Disclosure Simulation

Overview Operating Segments Reportable Segments Entity-Wide Disclosures SEC Reporting XBRL Reporting

Understand Segment Reporting with Ease.

This simulation provides an interactive approach to understanding key concepts and complex disclosure requirements of segment reporting.
Use the quantitative threshold simulator to see which segments are classified as reportable.

1. Segment Reporting Overview

The objective of segment reporting is to provide information on the business activities and economic environment of a company to help users of the financial statements:

Reporting Objectives

• Better understand the entity's performance.
• Better assess its prospects for future net cash flows.
• Make more informed judgments about the entity as a whole.

In general, an entity is required to disclose segment profit or loss, segment assets, and certain related items, but it is not required to report segment cash flow. [1]

Required Disclosures for All Public Entities

• Operating segments (annual and interim)
• Products and services
• Geographic areas
• Major customers [1]

The required financial statement information is essentially a disaggregation of the entity's regular financial statements. The accounting principles used in preparing the financial statements should be used for the segment information. Segment information presented must be reconciled to the related aggregate amounts in the financial statements. [1]

It is important to remember that transactions between the segments within the entity are not eliminated for reporting. [1]

Note: Segment reporting applies only to public companies. [1]

2. Operating Segments

An operating segment is a component of an entity that engages in business activities with specific characteristics.

Characteristics of an Operating Segment

• Engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity).
• Operating results are regularly reviewed by the entity's "chief operating decision maker" to make decisions about resources to be allocated to the segment and assess its performance.
• Discrete financial information is available. [1]

The definition of a segment depends on how management uses information, known as the 'management approach'. [1]

Components Not Considered Operating Segments

• Corporate Headquarters: May not be an operating segment if it does not earn revenues or earns only revenues incidental to the activities of the entity.
• Pension Plans: An entity's pension and other postretirement benefit plans are not considered operating segments. [1]

Reportable Segments

Reportable segments are operating segments that meet separate reporting criteria. Operating segments that exhibit similar long-term financial performance can be aggregated into a single operating segment only if they have the same basic characteristics in each of the following areas: [1]

• The nature of the products and services.
• The nature of the production processes.
• The type or class of customer for their products and services.
• The methods used to distribute their products or provide their services.
• The nature of the regulatory environment, if applicable (e.g., banking, insurance, public utilities). [1]

3. Determining Reportable Segments: Quantitative Threshold Simulation

Enter segment data below to see which segments are classified as reportable segments.

Enter Segment Data

Segment Name	Total Revenue (External + Internal)	Reported Profit/Loss (Profit is +, Loss is -)	Identifiable Assets	External Customer Revenue

Total Consolidated External Revenue:

Calculation Results

Segment Name	Revenue 10% Test	Profit/Loss 10% Test	Assets 10% Test	Is Reportable?	Reason

Total Reportable Segments External Revenue:

75% of Total Consolidated External Revenue Met:

If less than 75% of total consolidated external revenue is met, additional segments must be identified as reportable. [1]

4. Entity-Wide Disclosures

These disclosures apply to all public entities, regardless of the number of reportable segments.

Products and Services

Disclose revenues from external customers for each group of similar products or services. If impracticable, that fact must be disclosed. [1]

Geographic Areas

• Revenues: Disclose revenues from external customers attributed to the entity's country of domicile, to all foreign countries in total if material, and to individual foreign countries if material. Also disclose the basis for attributing external customer revenues to individual countries. [1]
• Long-Lived Assets: Disclose long-lived assets located in the entity's country of domicile, total long-lived assets located in all foreign countries in which the entity holds assets, and long-lived assets located in individual foreign countries if material. [1]

Major Customers

If revenues from a single customer account for 10% or more of total revenues, disclose that fact, the total amount of revenues from each such customer, and the identity of the segment(s) reporting the revenues. The identity of the major customer does not need to be disclosed. [1]

5. SEC Reporting Requirements

The U.S. Securities and Exchange Commission (SEC) governs the form and content of financial reports through Regulation S-X and Regulation S-K.

Regulation S-X: Financial Statement Form and Content

Governs the form, content, and requirements for interim and annual financial statements filed with the SEC. [1]

Interim Financial Statement Requirements

• Review Requirement: Must be reviewed by an independent public accountant. [1]
• Periods Presented:
  • Balance Sheets: As of the end of the most recent quarter and as of the end of the preceding fiscal year.
  • Income Statements: For the most recent quarter, for the period from the end of the preceding fiscal year to the end of the most recent quarter, and for the corresponding periods of the preceding fiscal year.
  • Cash Flow Statements: For the period from the end of the preceding fiscal year to the end of the most recent quarter, and for the corresponding periods of the preceding fiscal year. [1]
• Adjustments for Fair Presentation: Interim financial statements may be condensed and must reflect all adjustments necessary for a fair statement of the results for the interim period. [1]
• Disclosure Requirements: Interim information must be sufficient to not be misleading. Certain disclosures, such as a summary of significant accounting policies, may be omitted. [1]

Annual Financial Statement Requirements

• Audit Requirement: Must be audited by an independent public accountant. [1]
• Periods Presented:
  • Balance Sheets: For the two most recent fiscal years.
  • Income Statements, Cash Flow Statements, Statements of Changes in Owners' Equity: For each of the three fiscal years preceding the date of the most recent audited balance sheet. [1]
• Disclosure Requirements: Include dividends per share, principles of consolidation or combination, collateralized assets, defaults, preferred stock disclosures, restrictions on dividends, significant changes in debt, summarized financial information of unconsolidated subsidiaries, income tax expense, outstanding permanent equity or rights, related party transactions, repurchase and reverse repurchase agreements, and derivative accounting policies. [1]

Regulation S-K: Qualitative Disclosure Requirements

Prescribes how registrants should disclose significant qualitative descriptions of their business. [1]

• Business (Items 101-105): Includes descriptions of the business, properties, legal proceedings, mine safety disclosures, and risk factors.
• Registrant Securities (Items 201-202): Includes information on market price of common equity, common equity dividends, and description of securities.
• Financial Information (Items 301-308): Includes selected financial data, supplementary financial information, management's discussion and analysis (MD&A), changes in and disagreements with accountants, quantitative and qualitative disclosures about market risk, controls and procedures, and internal controls.
• Management and Certain Security Holders (Items 401-407): Includes information on directors and executive officers, executive compensation, security ownership of certain beneficial owners and management, related party transactions, compliance with Exchange Act, code of ethics, and corporate governance.
• Registration Statement and Prospectus Provisions (Items 501-512): Includes cover page, prospectus summary, use of proceeds, determination of offering price, dilution, selling security holders, plan of distribution, interests of named experts and counsel, disclosure of commission position, other expenses of issuance and distribution, and undertakings.
• Exhibits (Item 601): Relates to exhibits generally attached to the filing of various SEC required forms.
• Industry Guides (Items 801-802): Relates to disclosure requirements for specific industries.
• Roll-Up Transactions (Items 901-915): Relates to less common situations where private companies are consolidated into larger entities. [1]

6. XBRL Reporting Requirements

XBRL aims to improve the way data is communicated by providing an electronic format for financial and business reporting.

XBRL Definition and Purpose

XBRL (eXtensible Business Reporting Language) is a royalty-free, open specification for software that uses XML (eXtensible Markup Language) data tags to describe business and financial information. While HTML tells computers how to display text, XML and XBRL tell computers how to interpret the context of the text. [1]

Applying XBRL tags to financial statements allows computers to quickly search and combine information, enabling financial statement users to efficiently access and analyze data. [1]

Key XBRL Terminology

• Tag: A machine-readable code that provides a standard definition for each item in an income statement, statement of cash flows, balance sheet, or other financial/non-financial data. [1]
• Taxonomy: Defines the specific, computer-readable tags used for individual business and financial data items. Examples include the XBRL U.S. GAAP Financial Reporting Taxonomy, SEC Reporting Taxonomy, and industry-specific taxonomies. [1]
• Instance Document: An XBRL-formatted document that contains tagged data. [1]

SEC Interactive Data Rules and Tagging Details

The SEC's interactive data rules require U.S. public companies and foreign private issuers that use U.S. GAAP to submit their financial statements and accompanying financial statement schedules using XBRL. [1]

Tagged disclosures must include the primary financial statements, notes, and financial statement schedules. Financial statement footnote and financial statement schedule tagging is broken into four different levels. [1]

• Level 1: Each complete footnote and schedule is tagged as a single block of text.
• Level 2: Each significant accounting policy within the significant accounting policies footnote is tagged as a single block of text.
• Level 3: Each table within each footnote or schedule is tagged as a separate block of text.
• Level 4: Within each footnote or schedule, each amount (i.e., monetary value, percentage, and number) is required to be separately tagged. [1]

An Inline XBRL (iXBRL) format, which embeds XBRL data directly into HTML documents, is required by the SEC for periodic and interim financial reporting. The output is a single format that is readable by both humans and machines. [1]

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