Segment Reporting in Financial Statements

Segment reporting disaggregates a company’s consolidated financial information by meaningful business lines or geographic areas, revealing the underlying performance drivers of diversified organizations. This transparency enables investors, creditors, and other stakeholders to assess risks, returns, and resource allocations across different components of the entity—insights not evident from consolidated totals alone. Accurate segment identification and disclosure are required under both US GAAP and IFRS.

Definition and Identification of Operating Segments

An operating segment is a component of an entity:

• That engages in business activities from which it may earn revenues and incur expenses,

• Whose operating results are regularly reviewed by the entity’s chief operating decision maker (CODM) for resource allocation and performance assessment,

• For which discrete financial information is available.

Reportable segments are identified using a “management approach,” reflecting the internal organizational structure and reporting used by top management.

Quantitative Thresholds for Reportable Segments

An operating segment must be separately disclosed if it meets any of these quantitative thresholds:

• Revenue test: Segment revenue (external and intersegment) is 10% or more of the combined revenue of all operating segments.

• Profit or loss test: The absolute amount of its reported profit or loss is 10% or more of the greater (in absolute terms) of (a) the combined reported profit of all profitable segments or (b) the combined reported loss of all unprofitable segments.

• Asset test: Its assets are 10% or more of the combined assets of all operating segments.

If the total external revenue of disclosed segments is less than 75% of the entity’s consolidated revenue, additional segments must be reported until at least 75% is covered.

Disclosure Requirements

Required segment disclosures include:

• General information: Factors used to identify segments, types of products and services provided.

• Segment profit or loss, assets, and liabilities: For each reportable segment, disclose measures used internally by the CODM, including a reconciliation to consolidated totals.

• Revenue information: Distinguish between external and intersegment revenues.

• Geographic and major customer information: Disclose revenues and non-current assets by geographic area and the extent of reliance on major customers (if 10% or more of consolidated revenue).

Companies must explain measurement bases for reported segment information and reconcile total reportable segment amounts to consolidated figures.

Illustrative Example: Segment Disclosure

A manufacturing company reports three operating segments—Automotive, Aerospace, and Electronics. If the Automotive segment generates 50% of consolidated revenues, Aerospace 30%, and Electronics 20%, all three are reportable. Segment data would include:

• Revenues (external and intersegment)

• Profit or loss

• Assets (if reviewed by CODM)

• Reconciliation to consolidated totals

Changes in Segmentation and Restatement

If the entity’s internal reporting structure changes, segment disclosures must be restated to reflect the new structure for all periods presented. This ensures comparability and consistency for financial statement users.

Relevant Accounting Standards

• US GAAP: ASC 280 – Segment Reporting

• IFRS: IFRS 8 – Operating Segments

Both frameworks are substantially converged and emphasize the management perspective for segment identification and reporting.

Summary Table: Segment Reporting

Requirement	Details
Identification basis	Management approach; reviewed by CODM
Quantitative thresholds	10% for revenue, profit/loss, or assets; 75% coverage rule
Disclosures	Profit/loss, assets, revenues, measurement methods, reconciliations
Geographic/major customer info	Revenues and assets by area; customers ≥10% revenue
Restatement	Required for changes in structure

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