olds may be disclosed separately. Alternatively, operating segments that do not meet
any of the quantitative thresholds may be combined to produce a reportable segment
but only if the operating segments share a majority of the aggregation criteria listed
above. At least 75% of total consolidated revenue must be included in reportable seg-
ments; other business activities that are not included in reportable segments may be
disclosed in an “all other” category. While no limit is established in SFAS 131, the
FASB indicates that as the number of reportable segments increases above 10 the
company should consider whether a practical limit has been reached.
Under SFAS 131, operating segments may be based on products and services, ge-
ographic areas of operations, a combination of products and services and geographic
location (mixed), or regulatory environments. The method used must be disclosed.
Based on a study of U.S.-based Global 1000 companies,^8 it was found that most of
these companies are managed by line of business and accordingly disclose operating
segments based on products and services.
As noted above, operating segments are determined based on a company’s man-
agement structure. As anticipated by the FASB, it was found that, in comparison to
reporting under SFAS 14, determination of segments based on the management ap-
proach has resulted in a significant improvement in the consistency of segment in-
formation with other sections of the annual report. Also as anticipated by the FASB,
research reveals that the number of operating segments reported by U.S.-domiciled
Global 1000 companies increased significantly under SFAS 131 and that several
companies that had claimed to operate in one line of business under SFAS 14 now
provide operating segment disclosures.
(c) Information Provided for Reportable Operating Segments. In comparison to
SFAS 14, SFAS 131 represents an increase in the items of segment information re-
quired to be disclosed. Since the information is available for both internal and exter-
nal uses, the FASB argues the additional cost of preparation should not be substan-
tial. However, the cost of publication and competitive disadvantage are potential
issues that merit consideration.
The major categories of information that must be provided for each operating seg-
ment include:
- Information about segment profit or loss and certain revenues and expenses in-
cluded in segment profit or loss (to include revenues, interest revenue, interest
expense, depreciation/depletion/amortization, amount of noncash items other
than depreciation/amortization that are included in the determination of segment
profit/loss, unusual items, equity in the net income of investees accounted for by
the equity method, income tax expense/benefit, and extraordinary items) - Information about segment assets (to include assets, expenditures for additions
to segment assets, and the amount of investment in equity method investees in-
cluded in segment assets)
Under SFAS 131, the segment data represents information generated for internal
purposes, not the information used in preparing the enterprise’s general-purpose fi-
22 • 8 SEGMENTAL AND FOREIGN OPERATIONS DISCLOSURES(^8) Street, Nichols, and Gray, 2000.