ICAI MATTERS
| Exposure Draft on AS 17 Mon, 03 May 2010 05:37:21 GMT |
| ICAI Exposure Draft Accounting Standard 17 (Revised 20XX) (Corresponding to IFRS 8) Operating Segments Contents Paragraphs Core principle 1 Scope 2–4 Operating segments 5–10 Reportable segments 11–19 Aggregation criteria 12 Quantitative thresholds 13–19 Disclosure 20–24 General information 22 Information about profit or loss, assets and liabilities 23–24 Measurement 25–30 Reconciliations 28 Restatement of previously reported information 29–30 Entity-wide disclosures 31–34 Information about products and services 32 Information about geographical areas 33 Information about major customers 34 Transition and effective date 35–36B Withdrawal of AS 17 (Issued 2000) 37 Appendices A Defined term B Implementation Guidance C Legal and Regulatory Issues 3 D Comparison with IFRS 8, Operating Segments E Major differences between the Exposure Draft of AS 17 (Revised 20XX), Operating Segments, and the existing AS 17 (Issued 2000) 4 Exposure Draft Accounting Standard (AS) 17 (Revised 20XX)1 (Corresponding to IFRS 8) Operating Segments Following is the Exposure Draft of the Accounting Standard (AS) 17 (Revised 20XX), Operating Segments, issued by the Accounting Standards Board of the Institute of Chartered Accountants of India, for comments. The Board invites comments on any aspect of this Exposure Draft. Comments are most helpful if they indicate the specific paragraph or group of paragraphs to which they relate, contain a clear rationale and, where applicable, provide a suggestion for alternative wording. Comments should be submitted in writing to the Secretary, Accounting Standards Board. The Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha Marg, New Delhi – 110 002, so as to be received not later than May 31, 2010. Comments can also be sent by e-mail at edcommentsasb@icai.org or asb@icai.org. (This Exposure Draft of the revised Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles. This Exposure Draft of the revised Accounting Standard should be read in the context of its objective and the Preface to the Statements of Accounting Standards2) Core principle 1 An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates. Scope 2 This Accounting Standard shall apply to: 1 This Exposure Draft is issued pursuant to the decision to converge with IFRSs in respect of accounting periods commencing on or after April 1, 2011. All existing Accounting Standards and new Accounting Standards which are referred to in this Exposure Draft are also being revised or formulated, as the case may be, to converge with IFRSs from the aforesaid date. References to the other standards may be viewed accordingly. 2 Attention is specifically drawn to paragraph 4.3 of the Preface, according to which accounting standards are intended to apply only to items which are material. 5 (a) the separate or individual financial statements of an entity: (i) whose debt or equity instruments are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets), or (ii) that files, or is in the process of filing, its financial statements with a Securities Regulator or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and (b) the consolidated financial statements of a group with a parent: (i) whose debt or equity instruments are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets), or (ii) that files, or is in the process of filing, the consolidated financial statements with a Securities Regulator or other regulatory organisation for the purpose of issuing any class of instruments in a public market. 3 If an entity that is not required to apply this Accounting Standard chooses to disclose information about segments that does not comply with this Accounting Standard, it shall not describe the information as segment information. 4 If a financial report contains both the consolidated financial statements of a parent that is within the scope of this Accounting Standard as well as the parent’s separate financial statements, segment information is required only in the consolidated financial statements. Operating segments 5 An operating segment is a component of an entity: (a) that 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), (b) whose 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, and (c) for which discrete financial information is available. An operating segment may engage in business activities for which it has yet to earn revenues, for example, start-up operations may be operating segments before earning revenues. 6 6 Not every part of an entity is necessarily an operating segment or part of an operating segment. For example, a corporate headquarters or some functional departments may not earn revenues or may earn revenues that are only incidental to the activities of the entity and would not be operating segments. For the purposes of this Accounting Standard, an entity’s post-employment benefit plans are not operating segments. 7 The term ‘chief operating decision maker’ identifies a function, not necessarily a manager with a specific title. That function is to allocate resources to and assess the performance of the operating segments of an entity. Often the chief operating decision maker of an entity is its chief executive officer or chief operating officer but, for example, it may be a group of executive directors or others. 8 For many entities, the three characteristics of operating segments described in paragraph 5 clearly identify its operating segments. However, an entity may produce reports in which its business activities are presented in a variety of ways. If the chief operating decision maker uses more than one set of segment information, other factors may identify a single set of components as constituting an entity’s operating segments, including the nature of the business activities of each component, the existence of managers responsible for them, and information presented to the board of directors. 9 Generally, an operating segment has a segment manager who is directly accountable to and maintains regular contact with the chief operating decision maker to discuss operating activities, financial results, forecasts, or plans for the segment. The term ‘segment manager’ identifies a function, not necessarily a manager with a specific title. The chief operating decision maker also may be the segment manager for some operating segments. A single manager may be the segment manager for more than one operating segment. If the characteristics in paragraph 5 apply to more than one set of components of an organisation but there is only one set for which segment managers are held responsible, that set of components constitutes the operating segments. 10 The characteristics in paragraph 5 may apply to two or more overlapping sets of components for which managers are held responsible. That structure is sometimes referred to as a matrix form of organisation. For example, in some entities, some managers are responsible for different product and service lines worldwide, whereas other managers are responsible for specific geographical areas. The chief operating decision maker regularly reviews the operating results of both sets of components, and financial information is available for both. In that situation, the entity shall determine which set of components constitutes the operating segments by reference to the core principle. Reportable segments 11 An entity shall report separately information about each operating segment that: 7 (a) has been identified in accordance with paragraphs 5–10 or results from aggregating two or more of those segments in accordance with paragraph 12, and (b) exceeds the quantitative thresholds in paragraph 13. Paragraphs 14–19 specify other situations in which separate information about an operating segment shall be reported. Aggregation criteria 12 Operating segments often exhibit similar long-term financial performance if they have similar economic characteristics. For example, similar long-term average gross margins for two operating segments would be expected if their economic characteristics were similar. Two or more operating segments may be aggregated into a single operating segment if aggregation is consistent with the core principle of this Accounting Standard, the segments have similar economic characteristics, and the segments are similar in each of the following respects: (a) the nature of the products and services; (b) the nature of the production processes; (c) the type or class of customer for their products and services; (d) the methods used to distribute their products or provide their services; and (e) if applicable, the nature of the regulatory environment, for example, banking, insurance or public utilities. Quantitative thresholds 13 An entity shall report separately information about an operating segment that meets any of the following quantitative thresholds: (a) Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments. (b) The absolute amount of its reported profit or loss is 10 per cent or more of the greater, in absolute amount, of (i) the combined reported profit of all operating segments that did not report a loss and (ii) the combined reported loss of all operating segments that reported a loss. (c) Its assets are 10 per cent or more of the combined assets of all operating segments. Operating segments that do not meet any of the quantitative thresholds may be considered reportable, and separately disclosed, if management believes that information about the segment would be useful to users of the financial statements. 8 14 An entity may combine information about operating segments that do not meet the quantitative thresholds with information about other operating segments that do not meet the quantitative thresholds to produce a reportable segment only if the operating segments have similar economic characteristics and share a majority of the aggregation criteria listed in paragraph 12. 15 If the total external revenue reported by operating segments constitutes less than 75 per cent of the entity’s revenue, additional operating segments shall be identified as reportable segments (even if they do not meet the criteria in paragraph 13) until at least 75 per cent of the entity’s revenue is included in reportable segments. 16 Information about other business activities and operating segments that are not reportable shall be combined and disclosed in an ‘all other segments’ category separately from other reconciling items in the reconciliations required by paragraph 28. The sources of the revenue included in the ‘all other segments’ category shall be described. 17 If management judges that an operating segment identified as a reportable segment in the immediately preceding period is of continuing significance, information about that segment shall continue to be reported separately in the current period even if it no longer meets the criteria for reportability in paragraph 13. 18 If an operating segment is identified as a reportable segment in the current period in accordance with the quantitative thresholds, segment data for a prior period presented for comparative purposes shall be restated to reflect the newly reportable segment as a separate segment, even if that segment did not satisfy the criteria for reportability in paragraph 13 in the prior period, unless the necessary information is not available and the cost to develop it would be excessive. 19 There may be a practical limit to the number of reportable segments that an entity separately discloses beyond which segment information may become too detailed. Although no precise limit has been determined, as the number of segments that are reportable in accordance with paragraphs 13–18 increases above ten, the entity should consider whether a practical limit has been reached. Disclosure 20 An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates. 21 To give effect to the principle in paragraph 20, an entity shall disclose the following for each period for which a statement of profit and loss is presented: (a) general information as described in paragraph 22; 9 (b) information about reported segment profit or loss, including specified revenues and expenses included in reported segment profit or loss, segment assets, segment liabilities and the basis of measurement, as described in paragraphs 23–27; and (c) reconciliations of the totals of segment revenues, reported segment profit or loss, segment assets, segment liabilities and other material segment items to corresponding entity amounts as described in paragraph 28. Reconciliations of the amounts in the balance sheet for reportable segments to the amounts in the entity’s balance sheet are required for each date at which a balance sheet is presented. Information for prior periods shall be restated as described in paragraphs 29 and 30. General information 22 An entity shall disclose the following general information: (a) factors used to identify the entity’s reportable segments, including the basis of organisation (for example, whether management has chosen to organise the entity around differences in products and services, geographical areas, regulatory environments, or a combination of factors and whether operating segments have been aggregated), and (b) types of products and services from which each reportable segment derives its revenues. Information about profit or loss, assets and liabilities 23 An entity shall report a measure of profit or loss for each reportable segment. An entity shall report a measure of total assets and liabilities for each reportable segment if such amounts are regularly provided to the chief operating decision maker. An entity shall also disclose the following about each reportable segment if the specified amounts are included in the measure of segment profit or loss reviewed by the chief operating decision maker, or are otherwise regularly provided to the chief operating decision maker, even if not included in that measure of segment profit or loss: (a) revenues from external customers; (b) revenues from transactions with other operating segments of the same entity; (c) interest revenue; (d) interest expense; (e) depreciation and amortisation; 10 (f) material items of income and expense disclosed in accordance with paragraph 97 of AS 1 (Revised 20XX) Presentation of Financial Statements; (g) the entity’s interest in the profit or loss of associates and joint ventures accounted for by the equity method; (h) income tax expense or income; and (i) material non-cash items other than depreciation and amortisation. An entity shall report interest revenue separately from interest expense for each reportable segment unless a majority of the segment’s revenues are from interest and the chief operating decision maker relies primarily on net interest revenue to assess the performance of the segment and make decisions about resources to be allocated to the segment. In that situation, an entity may report that segment’s interest revenue net of its interest expense and disclose that it has done so. 24 An entity shall disclose the following about each reportable segment if the specified amounts are included in the measure of segment assets reviewed by the chief operating decision maker or are otherwise regularly provided to the chief operating decision maker, even if not included in the measure of segment assets: (a) the amount of investment in associates and joint ventures accounted for by the equity method, and (b) the amounts of additions to non-current assets3 other than financial instruments, deferred tax assets, post-employment benefit assets (see AS 15 (Revised 20XX) Employee Benefits paragraphs 54–58) and rights arising under insurance contracts. Measurement 25 The amount of each segment item reported shall be the measure reported to the chief operating decision maker for the purposes of making decisions about allocating resources to the segment and assessing its performance. Adjustments and eliminations made in preparing an entity’s financial statements and allocations of revenues, expenses, and gains or losses shall be included in determining reported segment profit or loss only if they are included in the measure of the segment’s profit or loss that is used by the chief operating decision maker. Similarly, only those assets and liabilities that are included in the measures of the segment’s assets and segment’s liabilities that are used by the chief operating decision maker shall be reported for that segment. If amounts are allocated to reported segment profit or loss, assets or liabilities, those amounts shall be allocated on a reasonable basis. 3 For assets classified according to a liquidity presentation, non-current assets are assets that include amounts expected to be recovered more than twelve months after the reporting period. 11 26 If the chief operating decision maker uses only one measure of an operating segment’s profit or loss, the segment’s assets or the segment’s liabilities in assessing segment performance and deciding how to allocate resources, segment profit or loss, assets and liabilities shall be reported at those measures. If the chief operating decision maker uses more than one measure of an operating segment’s profit or loss, the segment’s assets or the segment’s liabilities, the reported measures shall be those that management believes are determined in accordance with the measurement principles most consistent with those used in measuring the corresponding amounts in the entity’s financial statements. 27 An entity shall provide an explanation of the measurements of segment profit or loss, segment assets and segment liabilities for each reportable segment. At a minimum, an entity shall disclose the following: (a) the basis of accounting for any transactions between reportable segments. (b) the nature of any differences between the measurements of the reportable segments’ profits or losses and the entity’s profit or loss before income tax expense or income and discontinued operations (if not apparent from the reconciliations described in paragraph 28). Those differences could include accounting policies and policies for allocation of centrally incurred costs that are necessary for an understanding of the reported segment information. (c) the nature of any differences between the measurements of the reportable segments’ assets and the entity’s assets (if not apparent from the reconciliations described in paragraph 28). Those differences could include accounting policies and policies for allocation of jointly used assets that are necessary for an understanding of the reported segment information. (d) the nature of any differences between the measurements of the reportable segments’ liabilities and the entity’s liabilities (if not apparent from the reconciliations described in paragraph 28). Those differences could include accounting policies and policies for allocation of jointly utilised liabilities that are necessary for an understanding of the reported segment information. (e) the nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss and the effect, if any, of those changes on the measure of segment profit or loss. (f) the nature and effect of any asymmetrical allocations to reportable segments. For example, an entity might allocate depreciation expense to a segment without allocating the related depreciable assets to that segment. Reconciliations 28 An entity shall provide reconciliations of all of the following: (a) the total of the reportable segments’ revenues to the entity’s revenue. 12 (b) the total of the reportable segments’ measures of profit or loss to the entity’s profit or loss before tax expense (tax income) and discontinued operations. However, if an entity allocates to reportable segments items such as tax expense (tax income), the entity may reconcile the total of the segments’ measures of profit or loss to the entity’s profit or loss after those items. (c) the total of the reportable segments’ assets to the entity’s assets. (d) the total of the reportable segments’ liabilities to the entity’s liabilities if segment liabilities are reported in accordance with paragraph 23. (e) the total of the reportable segments’ amounts for every other material item of information disclosed to the corresponding amount for the entity. All material reconciling items shall be separately identified and described. For example, the amount of each material adjustment needed to reconcile reportable segment profit or loss to the entity’s profit or loss arising from different accounting policies shall be separately identified and described. Restatement of previously reported information 29 If an entity changes the structure of its internal organisation in a manner that causes the composition of its reportable segments to change, the corresponding information for earlier periods, including interim periods, shall be restated unless the information is not available and the cost to develop it would be excessive. The determination of whether the information is not available and the cost to develop it would be excessive shall be made for each individual item of disclosure. Following a change in the composition of its reportable segments, an entity shall disclose whether it has restated the corresponding items of segment information for earlier periods. 30 If an entity has changed the structure of its internal organisation in a manner that causes the composition of its reportable segments to change and if segment information for earlier periods, including interim periods, is not restated to reflect the change, the entity shall disclose in the year in which the change occurs segment information for the current period on both the old basis and the new basis of segmentation, unless the necessary information is not available and the cost to develop it would be excessive. Entity-wide disclosures 31 Paragraphs 32–34 apply to all entities subject to this Accounting Standard including those entities that have a single reportable segment. Some entities’ business activities are not organised on the basis of differences in related products and services or differences in geographical areas of operations. Such an entity’s reportable 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, an 13 entity’s reportable segments may hold assets in different geographical areas and report revenues from customers in different geographical areas, or more than one of its reportable segments may operate in the same geographical area. Information required by paragraphs 32–34 shall be provided only if it is not provided as part of the reportable segment information required by this Accounting Standard. Information about products and services 32 An entity shall report the revenues from external customers for each product and service, or each group of similar products and services, unless the necessary information is not available and the cost to develop it would be excessive, in which case that fact shall be disclosed. The amounts of revenues reported shall be based on the financial information used to produce the entity’s financial statements. Information about geographical areas 33 An entity shall report the following geographical information, unless the necessary information is not available and the cost to develop it would be excessive: (a) revenues from external customers (i) attributed to the entity’s country of domicile and (ii) attributed to all foreign countries in total from which the entity derives revenues. If revenues from external customers attributed to an individual foreign country are material, those revenues shall be disclosed separately. An entity shall disclose the basis for attributing revenues from external customers to individual countries. (b) non-current assets4 other than financial instruments, deferred tax assets, post-employment benefit assets, and rights arising under insurance contracts (i) located in the entity’s country of domicile and (ii) located in all foreign countries in total in which the 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 entity’s financial statements. If the necessary information is not available and the cost to develop it would be excessive, that fact shall be disclosed. An entity may provide, in addition to the information required by this paragraph, subtotals of geographical information about groups of countries. Information about major customers 34 An 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 per cent or more of an entity’s revenues, the entity shall disclose that fact, 4 For assets classified according to a liquidity presentation, non-current assets are assets that include amounts expected to be recovered more than twelve months after the reporting period. 14 the total amount of revenues from each such customer, and the identity of the segment or segments reporting the revenues. The entity need not disclose the identity of a major customer or the amount of revenues that each segment reports from that customer. For the purposes of this Accounting Standard, a group of entities known to a reporting entity to be under common control shall be considered a single customer. However, judgement is required to assess whether a government (including government agencies and similar bodies whether local, national or international) and entities known to the reporting entity to be under the control of that government are considered a single customer. In assessing this, the reporting entity shall consider the extent of economic integration between those entities. Transition and effective date 35 An entity to which this Accounting Standard is applicable shall apply it for accounting periods commencing on or after the date (to be announced separately) and will be mandatory in nature5 from that date. 35A [Deleted] 36 [Deleted] 36A [Deleted] 36B [Deleted] Withdrawal of AS 17 (Issued 2000) 37 This Standard supersedes AS 17 Segment Reporting (Issued 2000) in respect of the entities to which this Accounting Standard is applicable. 5 This implies that, while discharging their attest function, it will be the duty of the members of the Institute to examine whether this Accounting Standard is complied with in the presentation of financial statements covered by their audit. In the event of any deviation from this Accounting Standard, it will be their duty to make adequate disclosures in their audit reports so that the users of financial statements may be aware of such deviations. 15 Appendix A Defined term operating segment An operating segment is a component of an entity: (a) that 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), (b) whose 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, and (c) for which discrete financial information is available. 16 Appendix B Contents Guidance on implementing AS 17 (Revised 20XX) Operating Segments Introduction IG1 Descriptive information about an entity’s reportable segments IG2 Description of the types of products and services from which each reportable segment derives its revenues (paragraph 22(b)) Measurement of operating segment profit or loss, assets and liabilities (paragraph 27) Factors that management used to identify the entity’s reportable segments (paragraph 22(a)) Information about reportable segment profit or loss, assets and liabilities IG3 Reconciliations of reportable segment revenues, profit or loss, assets and liabilities IG4 Geographical information IG5 Information about major customers IG6 Diagram to assist in identifying reportable segments IG7 17 Guidance on implementing AS 17 (Revised 20XX) Operating Segments This guidance accompanies, but is not part of, AS 17 (Revised 20XX). Introduction IG1 This implementation guidance provides examples that illustrate the disclosures required by AS 17 (Revised 20XX) and a diagram to assist in identifying reportable segments. The formats in the illustrations are not requirements. A format that provides the information in the most understandable manner in the specific circumstances is encouraged. The following illustrations are for a single hypothetical entity referred to as Diversified Company. Descriptive information about an entity’s reportable segments IG2 The following illustrates the disclosure of descriptive information about an entity’s reportable segments (the paragraph references are to the relevant requirements in the Accounting Standard). Description of the types of products and services from which each reportable segment derives its revenues (paragraph 22(b)) Diversified Company has five reportable segments: car parts, motor vessels, software, electronics and finance. The car parts segment produces replacement parts for sale to car parts retailers. The motor vessels segment produces small motor vessels to serve the offshore oil industry and similar businesses. The software segment produces application software for sale to computer manufacturers and retailers. The electronics segment produces integrated circuits and related products for sale to computer manufacturers. The finance segment is responsible for portions of the company’s financial operations including financing customer purchases of products from other segments and property lending operations. Measurement of operating segment profit or loss, assets and liabilities (paragraph 27) The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies except that pension 18 expense for each operating segment is recognised and measured on the basis of cash payments to the pension plan. Diversified Company evaluates performance on the basis of profit or loss from operations before tax expense not including non-recurring gains and losses and foreign exchange gains and losses. Diversified Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties, ie at current market prices. Factors that management used to identify the entity’s reportable segments (paragraph 22(a)) Diversified Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Most of the businesses were acquired as individual units, and the management at the time of the acquisition was retained. Information about reportable segment profit or loss, assets and liabilities IG3 The following table illustrates a suggested format for disclosing information about reportable segment profit or loss, assets and liabilities (paragraphs 23 and 24). The same type of information is required for each year for which a statement of profit and loss is presented. Diversified Company does not allocate tax expense (tax income) or non-recurring gains and losses to reportable segments. In addition, not all reportable segments have material non-cash items other than depreciation and amortisation in profit or loss. The amounts in this illustration are assumed to be the amounts in reports used by the chief operating decision maker. Car parts Motor vessels Software Electronics Finance All other Totals Rs. Rs. Rs. Rs. Rs. Rs. Rs. Revenues from external customers 3,000 5,000 9,500 12,000 5,000 1,000(a) 35,500 Intersegment revenues – – 3,000 1,500 – – 4,500 Interest revenue 450 800 1,000 1,500 – – 3,750 Interest expense 350 600 700 1,100 – – 2,750 19 Net interest revenue(b) – – – – 1,000 – 1,000 Depreciation and amortization 200 100 50 1,500 1,100 – 2,950 Reportable segment profit 200 70 900 2,300 500 100 4,070 Other material non-cash items: Impairment of assets – 200 – – – – 200 Reportable segment assets 2,000 5,000 3,000 12,000 57,000 2,000 81,000 Expenditures for reportable segment noncurrent assets 300 700 500 800 600 – 2,900 Reportable segment liabilities 1,050 3,000 1,800 8,000 30,000 – 43,850 (a) Revenues from segments below the quantitative thresholds are attributable to four operating segments of Diversified Company. Those segments include a small property business, an electronics equipment rental business, a software consulting practice and a warehouse leasing operation. None of those segments has ever met any of the quantitative thresholds for determining reportable segments. (b) The finance segment derives a majority of its revenue from interest. Management primarily relies on net interest revenue, not the gross revenue and expense amounts, in managing that segment. Therefore, as permitted by paragraph 23, only the net amount is disclosed. Reconciliations of reportable segment revenues, profit or loss, assets and liabilities IG4 The following illustrate reconciliations of reportable segment revenues, profit or loss, assets and liabilities to the entity’s corresponding amounts (paragraph 28(a)–(d)). Reconciliations also are required to be shown for every other material item of information disclosed (paragraph 28(e)). The entity’s financial statements are assumed not to include discontinued operations. As discussed in paragraph IG2, the entity recognises and measures pension expense of its reportable 20 segments on the basis of cash payments to the pension plan, and it does not allocate certain items to its reportable segments. Revenues Rs. Total revenues for reportable segments 39,000 Other revenues 1,000 Elimination of intersegment revenues (4,500) Entity’s revenues 35,500 Profit or loss Rs. Total profit or loss for reportable segments 3,970 Other profit or loss 100 Elimination of intersegment profits (500) Unallocated amounts: Litigation settlement received 500 Other corporate expenses (750) Adjustment to pension expense in consolidation (250) Income before income tax expense 3,070 Assets Rs. [ Total assets for reportable segments 79,000 Other assets 2,000 Elimination of receivable from corporate headquarters (1,000) Other unallocated amounts 1,500 Entity’s assets 81,500 Liabilities Rs. Total liabilities for reportable segments 43,850 Unallocated defined benefit pension liabilities 25,000 Entity’s liabilities 68,850 Other material items Reportable segment totals Rs. Adjustments Rs. Entity totals Rs. Interest revenue 3,750 75 3,825 Interest expense 2,750 (50) 2,700 Net interest revenue 1,000 – 1,000 21 (finance segment only) Expenditures for assets 2,900 1,000 3,900 Depreciation and amortization 2,950 – 2,950 Impairment of assets 200 – 200 The reconciling item to adjust expenditures for assets is the amount incurred for the corporate headquarters building, which is not included in segment information. None of the other adjustments are material. Geographical information IG5 The following illustrates the geographical information required by paragraph 33. (Because Diversified Company’s reportable segments are based on differences in products and services, no additional disclosures of revenue information about products and services are required (paragraph 32).) Geographical information Revenues(a) Non-current assets Rs. Rs. United States 19,000 11,000 Canada 4,200 – China 3,400 6,500 Japan 2,900 3,500 Other countries 6,000 3,000 Total 35,500 24,000 (a) Revenues are attributed to countries on the basis of the customer’s location. Information about major customers IG6 The following illustrates the information about major customers required by paragraph 34. 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 represent approximately Rs. 5,000 of the Company’s total revenues. 22 Diagram to assist in identifying reportable segments IG7 The following diagram illustrates how to apply the main provisions for identifying reportable segments as defined in the Accounting Standard. The diagram is a visual supplement to the Accounting Standard. It should not be interpreted as altering or adding to any requirements of the Accounting Standard nor should it be regarded as a substitute for the requirements. Diagram for identifying reportable segments 23 Yes No Yes No Yes No Yes No Aggregate segments if desired Do some operating segments meet all aggregation criteria ? (paragraph 12) Do some operating segments meet the quantitative thresholds? (paragraph 13) Do some remaining operating segments meet a majority of the aggregation criteria ? (paragraph 14) Do identified reportable segments account for 75 per cent of the entity’ revenue ? (paragraph 15) Aggregate segments if desired Report additional segment if external revenue of all segment is less then 75 per cent of the entity’s revenue (paragraph 15) Aggregate remaining segments into ‘all other segments’category (pagagraph 16) These are reportable segments to be disclosed Identify operating segments based on management reporting system (paragraphs 5- 10) 24 Appendix C Legal and Regulatory Issues Note: This Appendix is not a part of the Accounting Standard (AS) 17 (Revised 20XX) Operating Segments. Some of the situations or accounting treatments prescribed in AS 17 (Revised 20XX) may not be in conformity with the present requirements of applicable laws/regulations in the country. In such cases, the provisions of the applicable laws/regulations will prevail. This Appendix contains the following such instances. Issues with RBI Circulars 1. RBI circular DBOD.No. BP.BC. 81 / 21.04.018/ 2006-07 dated 18th April, 2007, ‘Guidelines-Accounting Standard 17 (Segment Reporting)–Enhancement of Disclosures’ specifies uniform business and geographical segments for banks on the basis of requirements of existing AS 17. In line with the above mentioned circular, another RBI circular DBOD.BP.BC No.22 /21.04.018/2009-10 dated 1st July 2009, ‘Master Circular -Disclosure in Financial Statements – Notes to Accounts’, provides guidance regarding disclosures to be made as per existing AS 17 in notes to accounts. Since the Exposure Draft of AS 17 (Revised 20XX) is based on ‘management approach’ i.e. operating segments are identified based on the internal reports regularly reviewed by the entity’s chief operating decision maker, these circulars need to be suitably amended. Issues with IRDA Regulations 1. The Insurance Regulatory and Development Authority (preparation of financial statements and auditor’s report of insurance companies) Regulations, 2002, in Clause 1 of Part I of Schedule A, in respect of insurers carrying on life insurance business and in Clause 1 of Part I of Schedule B, in respect of insurers carrying on general insurance business provides that AS 17, Segment Reporting, shall apply to all insurers irrespective of the requirements regarding listing and turnover mentioned therein. This needs to be amended appropriately, keeping in view that the Exposure Draft of AS 17 (Revised 20XX) Operating Segments does not lay down any requirement regarding turnover for its applicability. 25 2. The Insurance Regulatory and Development Authority (preparation of financial statements and auditor’s report of insurance companies) Regulations, 2002, in Clause 1 of Part V of Schedule A, provides that an insurer shall prepare the Revenue Account, Profit and Loss Account and the Balance Sheet in prescribed formats. It further mentions certain businesses for which an insurer shall prepare Revenue Account and Balance Sheet separately and to that extent the application of AS 17 shall stand modified. Keeping in view that the Exposure Draft of AS 17 (Revised 20XX) is based on ‘management approach’, this clause needs to be suitably amended. 26 Appendix D Note: This appendix is not a part of the Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Accounting Standard (AS) 17 (Revised 20XX) and the corresponding International Financial Reporting Standard (IFRS) 8, Operating Segments Comparison with IFRS 8, Operating Segments There are following differences between the Exposure Draft of AS 17 (Revised 20XX), Operating Segments and International Financial Reporting Standard (IFRS) 8, Operating Segments (amended upto January 2010) issued by the International Accounting Standards Board: 1. The transitional provision regarding comparative information for the initial year given in IFRS 8 has not been given in the Exposure Draft of AS 17 (Revised 20XX), keeping in view that IFRS 1, First-time Adoption of International Financial Reporting Standard, provides that transitional provisions in other IFRSs do not apply to a first-time adopter’s transition to IFRSs, unless otherwise permitted in IFRS 1. It is noted that IFRS 1 does not permit use of this transitional provision given in IFRS 8. Accordingly, deleting or retaining the said paragraph would have the same effect. Other transitional provisions given in IFRS 8 have not been given in the Exposure Draft of AS 17 (Revised 20XX), keeping in view that these are not relevant in present Indian context. 2. Different terminology is used, as used in existing laws e.g., term ‘balance sheet’ is used instead of ‘Statement of financial position’ and ‘Statement of profit and loss’ is used instead of ‘Statement of comprehensive income’. The above differences do not result in non-convergence with IFRS 8. 27 Appendix E Note: This appendix is provided to bring out the major differences between the Exposure Draft of AS 17 (Revised 20XX) and the existing AS 17 (Issued 2000) with a view to facilitate commentators in sending their comments on the Exposure Draft of AS 17 (Revised 20XX). Major differences between the Exposure Draft of AS 17 (Revised 20XX), Operating Segments, and the existing AS 17 (Issued 2000) 1. Identification of segments under the Exposure Draft of AS 17 (Revised 20XX) is based on ‘management approach’ i.e. operating segments are identified based on the internal reports regularly reviewed by the entity’s chief operating decision maker. Existing AS 17 requires identification of two sets of segments—one based on related products and services, and the other on geographical areas based on the risks and returns approach. One set is regarded as primary segments and the other as secondary segments. 2. The Exposure Draft of AS 17 (Revised 20XX) requires that the amounts reported for each operating segment shall be measured on the same basis as used by the chief operating decision maker for the purposes of allocating resources to the segment and assessing its performance. Existing AS 17 requires segment information to be prepared in conformity with the accounting policies adopted for preparing and presenting the financial statements. Accordingly, existing AS 17 also defines segment revenue, segment expense, segment result, segment assets and segment liabilities. 3. The Exposure Draft of AS 17 (Revised 20XX) specifies aggregation criteria for aggregation of two or more segments. Existing AS 17 does not specify anything in this regard. 4. An explanation has been given in the existing AS 17 that in case there is neither more than one business segment nor more than one geographical segment, segment information as per this standard is not required to be disclosed. However, this fact shall be disclosed by way of footnote. The Exposure Draft of AS 17 (Revised 20XX) requires certain disclosures even in case of entities having single reportable segment. 5. An explanation has been given in the existing AS 17 that interest expense relating to overdrafts and other operating liabilities identified to a particular segment should not be included as a part of the segment expense. It also provides that in case interest is included as a part of the cost of inventories and those inventories are part of segment assets of a particular segment, such interest should be considered as a segment expense. These aspects are specifically dealt with keeping in view that the definition of ‘segment expense’ given in AS 17 excludes interest. The Exposure Draft of AS 17 (Revised 20XX) requires the separate disclosures about interest revenue and interest expense of each reportable segment, therefore, these aspects have not been specifically dealt with. 28 6. The Exposure Draft of AS 17 (Revised 20XX) requires disclosures of revenues from external customers for each product and service. With regard to geographical information, it requires the disclosure of revenues from customers in the country of domicile and in all foreign countries, non-current assets in the country of domicile and all foreign countries. It also requires disclosure of information about major customers. Disclosures in existing AS 17 are based on the classification of the segments as primary or secondary segments. Disclosure requirements for primary segments are more detailed as compared to secondary segments. |
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