Reportable Segment

Topics: Generally Accepted Accounting Principles, Financial ratios, Revenue Pages: 14 (4392 words) Published: May 3, 2013
What Is a Reportable Segment?
A reportable segment is a phrase that relates to international accounting procedures. An exploitable segment is a portion of a business that generates its own revenues and expenses and has its own assets and liabilities. A reportable segment is an exploitable segment that makes up at least 10 percent of the overall business's revenues or assets. In effect, a reportable segment is like a business within a business. International accounting standards require that public companies disclose each segment’s financial activities separately, as well as include that information in the corporation’s aggregate statements. Consider how this might affect your small business's accounting. IFRS Explained

The International Financial Reporting Standards (IFRS) are a series of accounting standards that define how financial statements should be presented to investors. IFRS has been adopted as the defining set of accounting standards for 122 countries, including all European Union nations. Prior to the IFRS, companies followed the International Accounting Standards, and those remain the standards unless superseded by IFRS. Businesses in the United States are required to use Generally Accepted Accounting Principles (GAAP), which is an alternative accounting framework to the IFRS. Segment of Exploitation

A reportable segment is defined by IFRS 8. This segment’s financial data must be reviewed separately by the highest decision-makers of the business. In a corporation, the highest decision-makers often are the executives of the company, such as the chief executive officer. At a small business, these might be the owner and manager. Reportable Segment Defined

A reportable segment is a segment of exploitation that meets one of the following criteria: The regular income generated by the segment accounts for 10 percent or more of the business’s total income; the segment has total gains or losses for the year equal to or in excess of 10 percent of the business’s total gains or losses; or the segment's assets are equal to or greater than 10 percent of the business’s total assets. Example of Reportable Segments

Assume a company has several product lines. One of its product lines is brake pads. The sale of the brake pads generates revenue for the business. The brake pads division has its own employees and machinery, which generate expenses. Monthly, the top executive of the business reviews the financial activity of the brake pad division to make sure it is meeting its quota. Therefore, the brake pad division is a segment of exploitation. The sale of brake pads account for 15 percent of the business’s total income. As a result, it is also a reportable segment. Reporting Requirements

Publicly traded businesses that prepare their financial statements in accordance with international accounting standards must disclose information about each of their reportable segments. This means that each segment’s activities must be listed separately as well as included in the business’s overall performance data. These disclosures must discuss why each listed segment qualifies as reportable. The business must provide how much income and expenses the segment generated. The business also must separately list all of the assets and liabilities specifically tied to the reportable segment.

Common ways to attain leverage are borrowing money, buying fixed assets and using derivatives.[2] Important examples are: * A public corporation may leverage its equity by borrowing money. The more it borrows, the less equity capital it needs, so any profits or losses are shared among a smaller base and are proportionately larger as a result.[3] * A business entity can leverage its revenue by buying fixed assets. This will increase the proportion of fixed, as opposed to variable, costs, meaning that a change in revenue will result in a larger change in operating income.[4][5] * Hedge funds often leverage their assets by using...
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