...Chapter 8 Segment and Interim Reporting Chapter Outline I. FASB Accounting Standards Codification Topic 280, Segment Reporting (FASB ASC 280), provides current guidance on segment reporting. A. ASC 280 follows a management approach in which segments are based on the way that management disaggregates the enterprise for making operating decisions; these are referred to as operating segments. B. Operating segments are components of an enterprise which meet three criteria. 1. Engage in business activities and earn revenues and incur expenses. 2. Operating results are regularly reviewed by the chief operating decision-maker to assess performance and make resource allocation decisions. 3. Discrete financial information is available from the internal reporting system. C. Once operating segments have been identified, three quantitative threshold tests are then applied to identify segments of sufficient size to warrant separate disclosure. Any segment meeting even one of these tests is separately reportable. 1. Revenue test—segment revenues, both external and intersegment, are 10 percent or more of the combined revenue, external and intersegment, of all reported operating segments. 2. Profit or loss test—segment profit or loss is 10 percent or more of the greater (in absolute terms) of the combined reported profit of all profitable segments or the combined reported loss of all segments incurring a loss. 3. Asset test—segment...
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...regulation when it comes to accounting. The AASB (Australian Accounting Standards Board), has set out such guidelines known as “accounting standards” which govern how businesses should be recording their financial reports. These range from the recording of share-based payments to agriculture of the business. There are three main benefits of a business following the standards set out by the AASB. The first being that investors' interests are ensured as the financial reports that they review are guaranteed to be accurate and genuine. This grants investors an assurance that their money will eventually earn and will benefit them in the near future thus increasing their confidence in the business. Secondly, it prevents attempts of fraud within a company as the accounting standards promote transparency among the business' transaction. Such transparency also allows for improved efficiency of the markets. Finally, with all organisations using the same accounting standards, comparisons between businesses are easier as all information is recorded in the same fashion. This also allows an organisation to see its strengths and weaknesses. From this, it is clear that any company that complies with the accounting standards set out by AASB will prosper more so than if they didn’t comply. This report shall focus on the company Qantas, a large scale airline company that is listed on ASX list of top 100 companies, and whether it meets particular accounting standards. The first standard...
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...Critical Analysis of Segment Reporting Executive Summary In this assignment Introduction The main purpose of this assignment is critical analysis the determinants and consequences of management approach to segment reporting. Entities are typically involved in different activities and operate across dispersed locations. The current accounting standard AASB 8, adopts a management approach to segment reporting. Operating Segments is primarily a disclosure standard and is particularly relevant for large organisations that operate in different geographic locations and in diverse business. Paragraph 1 of AASB 8 sets out the core principle: “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.” (Australian Accounting Standards Board 2010) 1. Differences between AASB 8 and the old accounting standards on segment reporting AASB 8 ‘Operating Segments’ was required to be adhered to for the reporting period starting on or after 1 January 2009. This standard is typically shown as a management approach to segment reporting, replacing the old accounting standard AASB 114 which was more of an industry standard (Harmer, 2007). The source of the statistics used in compliance with AASB 8 are gathered for the purpose for internal management decisions, hence the reason why it is viewed as a management approach. The old...
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... Financial Statement Project of Corporate Accounting Individual report of Decmil Group Ltd Hongtao Lu (41586561) 16th April 2014 ACCT7104 Corporate Accounting Individual Financial Statement Project 1 Hongtao Lu 41586561 1. Introduction The purpose of this report is to identify the significant elements of changes of Australian accounting standards in the fields of Segment Reporting and Joint Arrangements/Ventures in last five year. The report will examine accounting methods used in Decmil Group Limited’s annual report in order to assess the compliance level of the financial statements. 2. For Segment reporting 2.1. Significant Elements of Changes in the Field of Segment Reporting From the old to the new consolidation suite, for segment reporting, significant changes of accounting standard were mainly from AASB 114 segment reporting to AASB 8 operating segment. The latest version AASB 114 was applied to reporting periods beginning on or after 1st July 2008 but before 1st January 2009 (AASB 2008, p.1). Its replacement AASB 8 started from 1st Jan 2009, and early adoption was acceptable (AASB 2010, p.1). Firstly, the most significant change is the identification method of operating segments. AASB 8 (AASB 2010, p.10) requires reporting entity to identify reporting segments whose performance is regularly examined by CODM for decision making purpose of allocating resources. In contrast, AASB 114 required that segments should be defined by reporting entity’s business...
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...Corp. All rights reserved. Becker CPA Review, PassMaster Questions Lecture: Financial 1 Sources of GAAP CPA-00001 Type1 M/C A-D Corr Ans: D PM#1 F 1-01 1. CPA-00001 FARE Nov 95 #1, Released 2006 Page 6 According to the FASB conceptual framework, the objectives of financial reporting for business enterprises are based on: a. Generally accepted accounting principles. b. Reporting on management's stewardship. c. The need for conservatism. d. The needs of the users of the information. CPA-00001 Explanation Choice "d" is correct. The FASB conceptual framework states that the objectives of financial reporting stem from the informational needs of the external users of the information. SFAC 1 para. 28 Choice "a" is incorrect. Generally accepted accounting principles (GAAP) are derived from and based on the objectives of financial reporting, not the other way around. Choice "b" is incorrect. Information concerning management's stewardship is only one aspect of the information financial statements are intended to provide. SFAC 1 para. 50 Choice "c" is...
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...Statement of Financial Position: also referred to as a balance sheet, reports on a company's assets, liabilities, and ownership equity at a given point in time. 2. Statement of Comprehensive Income: also referred to as Profit and Loss statement, reports on a company's income, expenses, and profits over a period of time. A Profit & Loss statement provides information on the operation of the enterprise. These include sale and the various expenses incurred during the processing state. 3. Statement of Changes in Equity: explains the changes of the company's equity throughout the reporting period 4. Statement of cash flows: reports on a company's cash flow activities, particularly its operating, investing and financing activities. Different countries have developed their own accounting principles over time, making international comparisons of companies difficult. To ensure uniformity and comparability between financial statements prepared by different companies, a set of guidelines and rules are used. Commonly referred to as GAAP, these set of guidelines provide the basis in the...
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...liabilities of the acquired firm are adjusted to fair value; its reacquisition revenues and expenses are excluded from the combined income statement .In effect, the acquiree's books as of the date of the business combination are treated as if it were the end of its fiscal year, even though it may not be .For pooling accounting, however, the combinee's results of operations prior to the date of acquisition are included in the combiner’s results of operations as if the combination took place at the beginning of the year. The future earnings of pooling companies tend to be higher than those of purchase companies, primarily because of additional depreciation and goodwill amortization. Because of the possibility of abuse, the APB placed tight restrictions on the use of the pooling method by requiring compliance with twelve criteria. Perhaps the most important (and difficult) of these requires that a company exchange a portion of its shares for at least 90 percent of the voting stock of the other company. If any of the twelve criteria are not met, the business combination must be accounted for as a purchase. It is believed that under purchase accounting , the investment by the holding company contributes to group profits only after the combination whereas under the pooling-of-interests method , all the pre-combination profits are...
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...IFRS 8 Operating Segments On 30 November 2006, the International Accounting Standards Board issued IFRS 8 Operating Segments, which replaces IAS 14 Segment Reporting. IFRS 8 is mandatory for annual financial statements for periods beginning on or after 1 January 2009, although earlier application is permitted. Once IFRS 8 is effective, segment reporting under International Financial Reporting Standards and US Generally Accepted Accounting Principles will be converged except for some minor differences. What has changed? Identifying segments Upon adoption of IFRS 8, the identification of an entity’s segments may or may not change, depending on how the entity has applied IAS 14 in the past. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the entity, that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segment and to assess its performance. IAS 14 required an entity to identify two sets of segments (business and geographical), using a risks and rewards approach, with the entity’s “system of internal financial reporting to key management personnel” serving only as the starting point for the identification of such segments. One set of segments was regarded as primary and the other as secondary. If under IAS 14 an entity identified its primary segments on the basis of the reports provided to the person whom IFRS 8 regards as the chief operating decision...
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...Reporting Paper Janis Maraya ACC 541 February 20, 2015 William Montgomery To: CEO From: Controller Date: February 20, 2015 ------------------------------------------------- Subject: Pension Plans and Eliminating Segments This memo is to provide a response to the new CEO who is requesting information regarding the following areas. The first discussion is and explanation of the required reporting on retirement plans that includes defined contribution, defined benefit, and other postretirement plans. The memo will also include what may happen when two segments are to be eliminated. Defined Contribution Plan A defined contribution plan is when an employer puts aside a certain percentage periodically to the employees benefit plan. There are two types of defined contribution plan: Defined contribution health and welfare plans— This plan is an account for the employee that calculates the amount by using the participating employee’s account instead of his or her benefits. “The benefits a plan participant will receive are limited to the amount contributed to the participant's account, investment experience, expenses, and any forfeitures allocated to the participant's account. These plans also include flexible spending arrangements. (FASB ASC 715-70-20)” Defined contribution postretirement plan— A participant that uses this plan is provided an individual plan that is determined by the amount of services he or she has rendered. “Under a defined contribution postretirement...
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...Responsibility Accounting - an accounting information system and a managerial control device that involves: 1) identifying responsibility centers with their corresponding objectives 2) developing measures of achievement of such objectives 3) preparing/analyzing reports of such measures by the responsibility centers Responsibility Center -a sub-unit of an organization, such as a department, division, plant, business process or any segment whose manager has authority over, and is responsible and accountable for a specific or defined group of activities. 1) Cost Center - a responsibility center where a manager has control over the incurrence of costs but not over revenues or investments. Example: Maintenance Department 2) Revenue Center- the manager has control over revenues. Example: Sales Department 3) Profit Center- the manager has control over both costs and revenues. Example: A branch 4) Investment Center- the manager has control over both costs and revenues, as well as over investment in plant and equipment, receivable, inventory and other assets. 5) Service Center- usually operated as a cost center. It exists primarily and sometimes solely to provide specialized support to the other segments or sub-units of the organization. Organization Structures 1) Centralized organization- top management makes most decisions and controls most activities of the organizational segments from the...
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...Scrutinizing segment reporting is not new. FASB 14, the statement that FASB 131 replaced, required that segments be reported on a geographic and industry basis, unfortunately FASB 14 was too vague and companies were able to get around it. Analysts complained that it allowed too many companies to consider themselves single-segment firms. A study by the Financial Accounting Standards Board of almost 7,000 public companies found that some 75 percent said they operated in only one industry segment during the 1985—1991 time frame [ (Reason, 2001) ]. Because many companies were not providing expected segment information, the FASB replaced FASB 14 with FASB131. Under FASB 131, segments are defined from a management perspective--how management organizes segments within the enterprise for making decisions and assessing performance [ (Albrecht & Chipalkatti, 1998) ]. Under FASB 131, the management approach to segment reporting requires that segment information must be consistent with a firm’s management or organizational approach. FASB 131 was established to help the SEC see how companies are managed through the eyes of the company management. This means that companies had to start reporting the same information that they use internally for evaluating segment performance and that is used in deciding how to allocate resources to segments [ (Alfonso, Hollie, & Yu, 2010) ]. FASB 131 establishes standards for the way that public business enterprises report information...
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...All ACCOUNTING STANDARDS Accounting Standards are the defined accounting policies issued by Government or expert institute. These standards are issued to bring harmonization in follow up of accounting policies. Presently, Institute of Chartered Accountants of India has issued 29 Accounting Standards as listed below. AS 01. AS 02. AS 03. AS 04. AS 05. Policies AS 06. AS 07. AS 08. AS 09. AS 10. AS 11. AS 12. AS 13. AS 14. AS 15. AS 16. AS 17. AS 18. AS 19. AS 20. AS 21. AS 22. AS 23. AS 24. AS 25. AS 26. AS 27. AS 28. AS 29. Disclosure of Accounting Policies Valuation of Inventories Cash Flow Statements Contingencies and Events Occurring After the Balance Sheet Date Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Depreciation Accounting Construction Contracts Accounting for Research and Development (Not Applicable now) Revenue Recognition Accounting for Fixed Assets Accounting for the Effects of Changes in Foreign Exchange Rates Accounting for Government Grants Accounting for Investments Accounting for Amalgamation Accounting for Retirement Benefits in the financial Statements of Employers Borrowing Costs Segment Reporting Related Party Disclosure Leases Earning Per Share Consolidated Financial Statements Accounting for Taxes on Income Accounting for Investments in Associates in Consolidated Financial Statements Discontinuing Operations Interim Financial Reporting Intangible Assets Financial Reporting of Interests in Joint Ventures Impairment of...
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...SFAS No. 131 (ASC 280) allows companies to report segment information by line of business, geographic location, or a combination of the two. Which of these does Pepsi do? What does Coca-Cola do? Pepsi reports segment information by a combination of line of business and geographic location, and so does Coca-Cola. The company has identified six reportable segments, which are Frito-Lay North America (FLNA), Quaker Foods North America (QFNA), Latin America Foods (LAF), PepsiCo Americas Beverages (PAB), Europe, and Asia, Middle East & Africa (AMEA). Its best-known competitor, Coca-Cola, identified seven reportable segments: Eurasia and Africa; Europe; Latin America; North America; Pacific; Bottling Investments; and Corporate. Why does FASB require companies to disclose information by geographic area? In other words, how is geographic information valuable for financial statement users? For what geographic areas must a company provide disclosure? What geographic disclosures does Pepsi provide? What can you learn about PepsiCo from studying this information? The FASB requires companies to disclose information by geographic areas because financial information about the operations of the company’s divisions in different geographic areas assists stakeholders in understanding concentrations of risks and prospects for growth due to changes in economic conditions. Disclosure by geographic area assists stakeholders in understanding concentrations of risk due to all type of changes specific...
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...definition of “ordinary income” (loss) (740-270-20) Ordinary income (or loss) refers to income (or loss) from continuing operations before income taxes (or benefits) excluding significant unusual or infrequently occurring items. Extraordinary items, discontinued operations, and cumulative effects of changes in accounting principles are also excluded from this term. The term is not used in the income tax context of ordinary income versus capital gain. The meaning of unusual or infrequently occurring items is consistent with their use in the definition of the term extraordinary item. Ordinary income is income (or loss) exclusively from operations. Taxes expenses are not deducted. It does not include capital gains, or any other gain that could be infrequent or unusual. b. What is an error in previously issued financial statements? (250-10-20) An error in recognition, measurement, presentation, or disclosure in financial statements resulting from mathematical mistakes, mistakes in the application of generally accepted accounting principles (GAAP), or oversight or misuse of facts that existed at the time the financial statements were prepared. A change from an accounting principle that is not generally accepted to one that is generally accepted is a correction of an error. Errors found in financial statements that were already prepared. These errors could be recognition, measurement, presentation or disclosure errors due to mathematical mistakes, improper application of GAAP...
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...MEMORANDUM TO: Company CEO FROM: Accounting SUBJECT: Reporting of Pension Plan in acquisition of Company ABC DATE: June 11, 2013 In the acquisition of Company ABC, many factors must be considered, including the acquisition of the company’s pension plans and the addition of two segments. After careful analysis, the two operating segments have caused a loss to the company and must be eliminated. This memo will outline the reporting procedures for the pension plans and the necessary steps that must be taken to eliminate the segments. Defined Contribution Plan One of the most frequently encountered and widely used pension plans is the defined benefit plan. Under this plan, the employer is required to contribute a pre-determined amount of the employee’s salary to this pension plan. The amount of benefits paid out at the onset of retirement are not guaranteed and “are determined by the return earned on the invested pension funds during the investment period” (Schroeder, Clark, & Cathey, 2011). Employees also have the option of designating where their funds are invested, whether it be in stocks or in fixed-income securities. The defined contribution plan has become popular among employers due to no risk on behalf of the employer and the ease of reporting. Variations of the plan include: thrift plans, savings plans, 401(k) plans, profit-sharing plans, and incentive savings plans. Because of its simplicity in reporting, the defined contribution plan...
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