Segment Reporting

Question 1

What does the CPA Exam focus on?

Answer 1

What is an operating segment
What segment must be reported
What information needs to be disclosed?

Question 2

What is an operating segment?

Answer 2

Segment identified by management as a significant component of the operations.

• Generates Revenues and Expenses
• Chief operating decision maker
• Provides discrete financial information about it’s performance

Question 3

Which segments are reportable? (three quantitative tests)

Answer 3

• The three tests involves revenues, operating income, and assets using a greater than or equal to 10% threshold.

If the measurement exceeds the 10% it is a reportable segment

Question 4

How do you calculate the operating profit portion?

Answer 4

1) Compute absolute value of: Combined operating profits and combined operating losses of all segments
2) User the larger of the absolute value of the above as the threshold. If the operating segment’s operating profit or loss is > or equal to 10%, then it is a reportable segment

Question 5

After the three threshold tests, what needs to be done next?

Answer 5

The segments that meet the three threshold tests have to represent 75% of consolidated sales to unaffiliated customers. Operating segments are added to the reportable group until you meet that measure.

Operating segments that don’t meet the 3 segment rules, you add them until the reportable segment exceeds 75%.

Question 6

What are the required disclosures?

Answer 6

• Description of the segment
• Factors used to identify the test (which test)
• Types of products and services
• Earnings and total assets
• External revenues internal and external
• Interest Revenue and Expense
• Depreciation and amortization and depletion
• Unusual and infrequent expense
• Income Tax Expense
• Reconciliation of reportable segments and the related consolidated items

Question 7

When do the disclosures need to be disclosed?

Answer 7

Both in annual and interim financial reports

Question 8

What is the enterprise-wide disclosures?

Answer 8

To aid understanding of the entity’s operations, the entity must provide information about its products and services, geographical areas. If one customer accounts for more than 10% of the revenue, that must be disclosed.

Question 9

T/F: You do not consider intersegment sales for calculation the 10% threshold.

Answer 9

False- you do consider intersegment sales