ACCOUNTING STANDARD 17-- SEGMENT REPORTING
I. Criteria for classification of enterprises
a.
Level I Enterprises
Enterprises which fall in any one or more of the following categories, at any time during the accounting period :
i. Whose equity or debt securities are listed, whether in India or outside India.
ii. Which are in the process of listing their equity or debt securities as evidenced by the board of directors’ resolution.
iii. Banks including co-operative banks.
iv. Financial Institutions.
v. Carrying on insurance business.
vi. All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceeding accounting period on the basis of audited financial statements exceeds Rs. 50 crore. Turnover does not include ‘other income’.
vii. All commercial, industrial and business reporting enterprises having borrowings , including public deposits, in excess of Rs. 10 crore at any time during the accounting period.
viii. Holding and subsidiary enterprises of any one of the above at any time during the accounting period.
b. Level II EnterprisesEnterprises which are not Level I but fall in one or more of the following categories:
i. All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceeding accounting period on the basis of audited financial statements exceeds Rs. 40 lakhs but does not exceed Rs. 50 crore. Turnover does not include ‘other income’.
ii. All commercial, industrial and business reporting enterprises having borrowings , including public deposits, in excess of Rs. 1 crore but not in excess of Rs. 10 crore at any time during the accounting period.
iii. Holding and subsidiary enterprises of any one of the above at any time during the accounting period.
c. Level III EnterprisesEnterprises which are not covered under Level I and Level II.
Accounting Standard 17: Segment Reporting
• Requires reporting of financial information about different types of products and services an enterprise provides and different geographical areas in which it operates.
• A business segment is a distinguishable component of an enterprise providing a product or service or group of products or services that is subject to risks and returns that are different from other business segments.
• A geographical segment is distinguishable component of an enterprise providing products or services in a particular economic environment that is subject to risks and returns that are different from components operating in other economic environments.
• Internal organizational management structure, internal financial reporting system is normally the basis for identifying the segments.
• The dominant source and nature of risk and returns of an enterprise should govern whether its primary reporting format will be business segments or geographical segments.
• A business segment or geographical segment is a reportable segment if revenue from sales to external customers and from transactions with other segments exceeds 10% of total revenues (external and internal) of all segments; or segment result, whether profit or loss, is 10% or more of (i) combined result of all segments in profit or (ii) combined result of all segments in loss whichever is greater in absolute amount; or segment assets are 10% or more of all the assets of all the segments. If there is reportable segment in the preceding period (as per criteria), same shall be considered as reportable segment in the current year.
• If total external revenue attributable to reportable segment constitutes less than 75% of total revenues then additional segments should be identified, for reporting.
• Under primary reporting format for each reportable segment the enterprise should disclose external and internal segment revenue, segment result, amount of segment assets and liabilities, cost of fixed assets acquired, depreciation, amortization of assets and other non cash expenses.
• Interest expense (on operating liabilities) identified to a particular segment (not of a financial nature) will not be included as part of segment expense. However, interest included in the cost of inventories (as per AS 16) is to be considered as a segment expense (ASI-22).
• Reconciliation between information about reportable segments and information in financial statements of the enterprise is also to be provided.
• Secondary segment information is also required to be disclosed. This includes information about revenues, assets and cost of fixed assets acquired.
• When primary format is based on geographical segments, certain further disclosures are required.
• Disclosures are also required relating to intra-segment transfers and composition of the segment.
• AS disclosure is not required, if more than one business or geographical segment is not identified However, the fact that there is only one 'business segment' and 'geographical segment' should be disclosed by way of a note. (ASI-20 Revised).
Accounting Standards Interpretation (ASI) 20 (Revised)Accounting Standards Interpretation (ASI) 20 (Revised), Disclosure of Segment Information, Accounting Standard (AS) 17, Segment Reporting
ISSUE
1. Whether an enterprise, which has neither more than one business segment nor more than one geographical segment, is required to disclose segment information as per AS 17.
CONSENSUS
2. In case by applying the definitions of ‘business segment’ and ‘geographical segment’, contained in AS 17, it is concluded that there is neither more than one business segment nor more than one geographical segment, segment information as per AS 17 is not required to be disclosed. However, the fact that there is only one ‘business segment’ and ‘geographical segment’ should be disclosed by way of a note.
BASIS FOR CONCLUSIONS
3. The paragraph of AS 17 dealing with ‘Objective’ provides as under:
“The objective of this Statement is to establish principles for reporting financial information, about the different types of products and services an enterprise produces and the different geographical areas in which it operates. Such information helps users of financial statements:
a. better understand the performance of the enterprise;
b. better assess the risks and returns of the enterprise; and
c. make more informed judgements about the enterprise as a whole.
Many enterprises provide groups of products and services or operate in geographical areas that are subject to differing rates of profitability, opportunities for growth, future prospects, and risks. Information about different types of products and services of an enterprise and its operations in different geographical areas - often called segment information - is relevant to assessing the risks and returns of a diversified or multi-locational enterprise but may not be determinable from the aggregated data. Therefore, reporting of segment information is widely regarded as necessary for meeting the needs of users of financial statements.”
In case of an enterprise, which has neither more than one business segment nor more than one geographical segment, the relevant information is available from the balance sheet and statement of profit and loss itself and, therefore, keeping in view the objective of segment reporting, such an enterprise is not required to disclose segment information as per AS 17. The disclosure of the fact that there is only one ‘business segment’ and ‘geographical segment’ and, therefore, the segment information is not provided by the concerned enterprise is useful for the users of the financial statements while making a comparison among various enterprises.
a.
Level I Enterprises
Enterprises which fall in any one or more of the following categories, at any time during the accounting period :
i. Whose equity or debt securities are listed, whether in India or outside India.
ii. Which are in the process of listing their equity or debt securities as evidenced by the board of directors’ resolution.
iii. Banks including co-operative banks.
iv. Financial Institutions.
v. Carrying on insurance business.
vi. All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceeding accounting period on the basis of audited financial statements exceeds Rs. 50 crore. Turnover does not include ‘other income’.
vii. All commercial, industrial and business reporting enterprises having borrowings , including public deposits, in excess of Rs. 10 crore at any time during the accounting period.
viii. Holding and subsidiary enterprises of any one of the above at any time during the accounting period.
b. Level II EnterprisesEnterprises which are not Level I but fall in one or more of the following categories:
i. All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceeding accounting period on the basis of audited financial statements exceeds Rs. 40 lakhs but does not exceed Rs. 50 crore. Turnover does not include ‘other income’.
ii. All commercial, industrial and business reporting enterprises having borrowings , including public deposits, in excess of Rs. 1 crore but not in excess of Rs. 10 crore at any time during the accounting period.
iii. Holding and subsidiary enterprises of any one of the above at any time during the accounting period.
c. Level III EnterprisesEnterprises which are not covered under Level I and Level II.
Accounting Standard 17: Segment Reporting
• Requires reporting of financial information about different types of products and services an enterprise provides and different geographical areas in which it operates.
• A business segment is a distinguishable component of an enterprise providing a product or service or group of products or services that is subject to risks and returns that are different from other business segments.
• A geographical segment is distinguishable component of an enterprise providing products or services in a particular economic environment that is subject to risks and returns that are different from components operating in other economic environments.
• Internal organizational management structure, internal financial reporting system is normally the basis for identifying the segments.
• The dominant source and nature of risk and returns of an enterprise should govern whether its primary reporting format will be business segments or geographical segments.
• A business segment or geographical segment is a reportable segment if revenue from sales to external customers and from transactions with other segments exceeds 10% of total revenues (external and internal) of all segments; or segment result, whether profit or loss, is 10% or more of (i) combined result of all segments in profit or (ii) combined result of all segments in loss whichever is greater in absolute amount; or segment assets are 10% or more of all the assets of all the segments. If there is reportable segment in the preceding period (as per criteria), same shall be considered as reportable segment in the current year.
• If total external revenue attributable to reportable segment constitutes less than 75% of total revenues then additional segments should be identified, for reporting.
• Under primary reporting format for each reportable segment the enterprise should disclose external and internal segment revenue, segment result, amount of segment assets and liabilities, cost of fixed assets acquired, depreciation, amortization of assets and other non cash expenses.
• Interest expense (on operating liabilities) identified to a particular segment (not of a financial nature) will not be included as part of segment expense. However, interest included in the cost of inventories (as per AS 16) is to be considered as a segment expense (ASI-22).
• Reconciliation between information about reportable segments and information in financial statements of the enterprise is also to be provided.
• Secondary segment information is also required to be disclosed. This includes information about revenues, assets and cost of fixed assets acquired.
• When primary format is based on geographical segments, certain further disclosures are required.
• Disclosures are also required relating to intra-segment transfers and composition of the segment.
• AS disclosure is not required, if more than one business or geographical segment is not identified However, the fact that there is only one 'business segment' and 'geographical segment' should be disclosed by way of a note. (ASI-20 Revised).
Accounting Standards Interpretation (ASI) 20 (Revised)Accounting Standards Interpretation (ASI) 20 (Revised), Disclosure of Segment Information, Accounting Standard (AS) 17, Segment Reporting
ISSUE
1. Whether an enterprise, which has neither more than one business segment nor more than one geographical segment, is required to disclose segment information as per AS 17.
CONSENSUS
2. In case by applying the definitions of ‘business segment’ and ‘geographical segment’, contained in AS 17, it is concluded that there is neither more than one business segment nor more than one geographical segment, segment information as per AS 17 is not required to be disclosed. However, the fact that there is only one ‘business segment’ and ‘geographical segment’ should be disclosed by way of a note.
BASIS FOR CONCLUSIONS
3. The paragraph of AS 17 dealing with ‘Objective’ provides as under:
“The objective of this Statement is to establish principles for reporting financial information, about the different types of products and services an enterprise produces and the different geographical areas in which it operates. Such information helps users of financial statements:
a. better understand the performance of the enterprise;
b. better assess the risks and returns of the enterprise; and
c. make more informed judgements about the enterprise as a whole.
Many enterprises provide groups of products and services or operate in geographical areas that are subject to differing rates of profitability, opportunities for growth, future prospects, and risks. Information about different types of products and services of an enterprise and its operations in different geographical areas - often called segment information - is relevant to assessing the risks and returns of a diversified or multi-locational enterprise but may not be determinable from the aggregated data. Therefore, reporting of segment information is widely regarded as necessary for meeting the needs of users of financial statements.”
In case of an enterprise, which has neither more than one business segment nor more than one geographical segment, the relevant information is available from the balance sheet and statement of profit and loss itself and, therefore, keeping in view the objective of segment reporting, such an enterprise is not required to disclose segment information as per AS 17. The disclosure of the fact that there is only one ‘business segment’ and ‘geographical segment’ and, therefore, the segment information is not provided by the concerned enterprise is useful for the users of the financial statements while making a comparison among various enterprises.
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