Introduction
The International Accounting Standard (IAS) 14, Segment Reporting, provides guidance on how entities should report financial and descriptive information about their operating segments, products, and services. The standard aims to improve the transparency of financial reporting by requiring entities to disclose the performance of their individual business segments.
This technical write-up will provide a detailed explanation of IAS 14, its scope, key concepts, and requirements.
Scope
IAS 14 applies to all entities, including those that are not publicly traded, that have business segments whose operating results are regularly evaluated by the chief operating decision-maker (CODM) for the purpose of allocating resources and assessing performance. The standard requires an entity to disclose information about its reportable segments, regardless of whether the entity prepares consolidated financial statements or individual financial statements.
Key Concepts
Segment
A segment is a component of an entity that engages in business activities and generates revenue and expenses that can be distinguished from the activities of other segments.
Reportable Segment
A reportable segment is a segment that meets one or more of the following quantitative thresholds:
- Its revenue from external customers is 10 percent or more of the combined revenue of all segments.
- Its segment result (profit or loss) is 10 percent or more of the combined result of all segments.
- Its assets are 10 percent or more of the combined assets of all segments.
Operating Segments
Operating segments are those segments that engage in business activities from which an entity may earn revenues and incur expenses.
Identifying Reportable Segments
The standard requires an entity to identify its reportable segments based on the following factors:
- The nature of the products and services provided.
- The geographical areas in which it operates.
- The regulatory environment in which it operates.
- The nature of the production process.
Reporting Requirements
The standard requires an entity to disclose the following information for each reportable segment:
- Revenues from external customers.
- Intersegment revenues.
- Segment result (profit or loss).
- Total assets.
- Total liabilities.
- Capital expenditures.
- Depreciation and amortization expense.
- Certain items of revenue, expense, or result that are unusual in nature or occur infrequently.
In addition, the standard requires an entity to provide certain disclosures about its segments, including:
- A description of the basis of measurement of segment revenue and segment result.
- A reconciliation of the total of the reportable segments' segment result to the entity's profit or loss before tax.
- A reconciliation of the total assets of the reportable segments to the entity's total assets.
- A description of the segment assets and liabilities.
Conclusion
IAS 14, Segment Reporting, is an important standard that requires entities to provide transparent and comprehensive information about their operating segments, products, and services. The standard aims to provide investors and other stakeholders with the information necessary to make informed decisions about the entity's financial performance and prospects.
FAQs
Frequently Asked Questions about IAS 14
IAS 14 is an international accounting standard that provides guidance on how entities should report financial and descriptive information about their operating segments, products, and services.
IAS 14 applies to all entities, including those that are not publicly traded, that have business segments whose operating results are regularly evaluated by the chief operating decision-maker (CODM) for the purpose of allocating resources and assessing performance.
A reportable segment is a segment that meets one or more of the following quantitative thresholds: Its revenue from external customers is 10 percent or more of the combined revenue of all segments; its segment result (profit or loss) is 10 percent or more of the combined result of all segments; or its assets are 10 percent or more of the combined assets of all segments.
An entity is required to disclose revenues from external customers, intersegment revenues, segment result (profit or loss), total assets, total liabilities, capital expenditures, depreciation and amortization expense, and certain items of revenue, expense, or result that are unusual in nature or occur infrequently.
An entity is required to provide a description of the basis of measurement of segment revenue and segment result, a reconciliation of the total of the reportable segments' segment result to the entity's profit or loss before tax, a reconciliation of the total assets of the reportable segments to the entity's total assets, and a description of the segment assets and liabilities.
IAS 14 is important because it provides investors and other stakeholders with the information necessary to make informed decisions about the entity's financial performance and prospects. It also improves the transparency of financial reporting by requiring entities to disclose the performance of their individual business segments.
How Future Connect Training's Accounts Assistant Training can help in understaing IAS 14?
- The Accounts Assistant training can be helpful in understanding IAS 14 as it provides participants with a basic understanding of financial accounting principles and concepts. This knowledge is essential for understanding the requirements of IAS 14 and how to apply them in practice.
- The training can cover topics such as financial statements, accounting policies, and accounting standards, including IAS 14. Participants can learn about the scope of the standard, key concepts, and reporting requirements for segment reporting.
- Moreover, the training can help participants in identifying reportable segments based on various factors and understanding how to prepare and present segment information in financial statements. It can also cover the disclosure requirements for segment information, including reconciliations and descriptions of segment assets and liabilities.
- In summary, the Accounts Assistant training can provide participants with the foundational knowledge and skills necessary to understand and apply the requirements of IAS 14, which is essential for accurate and transparent financial reporting.
