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Once a reporting entity identifies its operating segments and determines whether aggregation is appropriate, it should determine which of those operating segments (or aggregated operating segments) are required to be presented as reportable segments based on the quantitative thresholds established by ASC 280-10-50-12 (referred to in this chapter as the 10% tests and the 75% revenue test). In addition, a reporting entity should identify any operating segment (or aggregation of operating segments) that it will elect to present as a reportable segment even though it is not required to be separately reported based on these quantitative thresholds.

25.6.1 The 10% tests (reportable segments)

The 10% tests established by ASC 280-10-50-12 are as follows:

Excerpt from ASC 280-10-50-12

A public entity shall report separately information about an operating segment that meets any of the following quantitative thresholds:

  1. Its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent or more of the combined revenue, internal and external, of all operating segments.
  2. The absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of either:
    1. The combined reported profit of all operating segments that did not report a loss
    2. The combined reported loss of all operating segments that did report a loss.
  3. Its assets are 10 percent 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 readers of the financial statements.

The 10% tests are based on the reported measures of revenue, profit, and assets that are used by the CODM to assess performance and allocate resources. A reporting entity must separately report a segment if the operating segment (or aggregated operating segment) meets any of the 10% tests.
Revenue
The revenue test is based on the reported measure of segment revenue, which may include or be comprised entirely of intersegment revenues. If an operating segment’s reported revenue is 10% or more of the reporting entity’s combined revenue, the operating segment is a reportable segment. Combined revenue is the sum of all operating segment revenue, including intersegment revenue, which may be greater than the reporting entity’s consolidated revenues.
Profit
The profit test is based on the absolute amount of reported profit or loss for each operating segment. If an operating segment’s absolute amount of profit or loss is 10% or more of the greater of either (1) the combined loss of all operating segments that reported a loss, or (2) the combined profit of all operating segments that reported a profit, then the operating segment is a reportable segment. This test will usually yield different results than simply comparing the operating segment’s profit or loss to consolidated profit or loss. Figure FSP 25-3 details an example of the profit test.
Figure FSP 25-3
Example of segment profit test
Operating segment
Reported profit or (loss)
(Absolute value of reported profit or loss) / (absolute value of the greater of combined reported profit of all segments that did not report a loss or combined reported loss of all segments that reported a loss)
Is the operating segment a reportable segment?
A
$112
50%
Yes
B
$(15)
7%
No
C
$90
40%
Yes
D
$21
9%
No
Consolidated profit
$208
Combined profit of all segments that did not report a loss
$223
Combined loss of all segments that reported a loss
$(15)
Assets
The asset test is based on segment assets reported to the CODM. If an operating segment’s reported assets are 10% or more of the combined assets of all operating segments, the operating segment is a reportable segment. This test may yield different results than simply comparing the operating segment’s total assets to consolidated assets. If a CODM does not review asset information, this test may not be applicable.
If different measures are reported by different operating segments, a consistent measure should be utilized to perform the 10% tests. Example FSP 25-6 provides an illustration of how the 10% tests are applied when a reporting entity’s operating segments report different measures of segment profitability and assets.
EXAMPLE FSP 25-6
Performing the 10% tests when profitability and asset measures are not the same for all segments
FSP Corp has three operating segments, none of which can be combined under the aggregation criteria. The following is reported to the CODM:
  • Segment 1 measures profitability based on operating income, with pension expenses reported on a cash basis. Segment 1 is the only segment with allocated pension expense. Asset information is limited to the presentation of accounts receivable.
  • Segment 2 measures profitability based on pretax income, which includes an internal cost-of-capital amount charged by “corporate” only to this segment. Asset information is limited to the presentation of accounts receivable and fixed assets.
  • Segment 3 measures profitability based on after-tax income. Asset information is limited to the presentation of accounts receivable.
All segments of the reporting entity are profitable.
How should FSP Corp evaluate the operating segments using the 10% tests?
Analysis
If operating segments are evaluated based on different measures of profit or loss, the criterion of ASC 280-10-50-12(b) should be applied to a consistent measure of profit or loss that is determined for each segment even if that measure is not regularly provided to the CODM for all segments. In the above example, since operating income is available for all segments, it may be the most consistent measure for performing the 10% profit test.
Accounts receivable would be the most consistent asset measure on which to perform the 10% tests, as it is the only asset measure reviewed by the CODM. See Example FSP 25-8 for a discussion of the 10% tests when no asset information is reviewed by the CODM.

Question FSP 25-6
Is a reporting entity required to apply the 10% tests to its operating segments when determining their reportable segments for each interim period?
PwC response
Generally, the composition of reportable segments does not change absent an internal reorganization; therefore, a reporting entity need not apply the quantitative thresholds in each interim period. However, if facts and circumstances suggest that the application of the quantitative thresholds would reveal additional reportable segments, those segments may need to be disclosed as new reportable segments. For example, an operating segment that was previously immaterial (i.e., did not meet the 10% tests) but now meets the 10% tests should be disclosed if management expects the segment will continue to be significant. A reporting entity may consider whether aggregation with other operating segments is appropriate. The reporting entity’s prior years’ interim segment information that is presented for comparative purposes must be revised to reflect the new reportable segment, unless impracticable.

Question FSP 25-7
How should the 10% tests be applied in determining the significance of an operating segment that is comprised solely of an equity method investment?
PwC response
We believe the 10% tests for both segment profitability and assets are measured using the amounts that most closely correspond to the amounts reflected in the reporting entity’s consolidated financial statements. Generally, the 10% revenue test is not applicable since equity method investments are presented as a net amount on both the balance sheet and income statement. The 10% revenue test would require the reporting entity to gross up a proportionate share of the investee’s external revenues, which is not consistent with the measurements reflected in the reporting entity’s consolidated financial statements.
As indicated in ASC 280-10-50-12, reporting entities are not precluded from voluntarily disclosing operating segments that, although not required to be reported based on the 10% tests, may contribute to a user’s understanding of the reporting entity.

25.6.2 Immaterial operating segments

As discussed in ASC 280-10-50-13, immaterial operating segments and immaterial groups of aggregated operating segments (i.e., those that do not meet the 10% tests) may be combined with other immaterial operating segments to produce a reportable segment only if all three of the following are true:
  • The aggregation is consistent with the objective and basic principles of ASC 280
  • The segments have similar economic characteristics
  • The operating segments share a majority of the qualitative aggregation criteria in ASC 280-10-50-11
As discussed in ASC 280-10-50-15, operating segments that are not reportable are required to be combined and disclosed in an "all other" category separate from other reconciling items.
Question FSP 25-8
In order to aggregate two or more operating segments that do not individually meet the 10% tests, do the immaterial operating segments need to share a majority of all of the items included in ASC 280-10-50-11, including similar economic characteristics?
PwC response
According to ASC 280-10-50-13, immaterial operating segments must always have similar economic characteristics and meet a majority of the remaining five aggregation criteria included in ASC 280-10-50-11 to produce a reportable segment. When immaterial operating segments are not aggregated because they do not meet these criteria, the immaterial operating segments should be combined and disclosed in an “all other” category (assuming the 75% revenue test, as discussed in FSP 25.6.3, has been met). The “all other” category is presented separately from other reconciling items in the reconciliation required for segment disclosures. See FSP 25.6.4 for a discussion of the “all other” category.

25.6.3 The 75% revenue test (reportable segments)

ASC 280-10-50-14 requires that reportable segment external revenues aggregate to at least 75% of a reporting entity’s consolidated revenue. If aggregate reported revenue is less than this threshold, additional reportable segments should be identified, even if those additional operating segments do not meet the 10% tests, until at least 75% of consolidated revenue is included in reportable segments. While the 10% revenue test to identify reportable segments is based on the measure of revenue used by the CODM to assess performance and allocate resources, the 75% revenue test is based on a reporting entity’s consolidated revenue.
ASC 280 does not provide guidance as to which otherwise non-reportable operating segments should be selected as reportable segments to achieve the “75% threshold.” Accordingly, the reporting entity may choose any segment to report and not necessarily the next largest. For example, a reporting entity with five operating segments that comprise 74%, 9%, 8%, 7%, and 2% of consolidated revenue, respectively, could choose to separately disclose any one or more of the four latter segments in addition to the first segment to achieve the 75% revenue test requirement. However, we believe the reporting entity should consider what is most meaningful to the financial statement users.
ASC 280-10-50-18 also indicates there may be a practical limit to the number of reportable segments.

ASC 280-10-50-18

There may be a practical limit to the number of reportable segments that a public entity separately discloses beyond which segment information may become overly detailed. Although no precise limit has been determined, as the number of segments that are reportable in accordance with paragraphs 280-10-50-12 through 50-17 increases above 10, the public entity should consider whether a practical limit has been reached.

A reporting entity may not limit the number of reportable segments to 10 segments if it has not met the 75% revenue test. In particular, ASC 280-10-50-14 states that “additional operating segments shall be identified as reportable segments until at least 75% of total consolidated revenue is included in reportable segments.” Accordingly, if a reporting entity has 20 different operating segments, all of which are the same size and none of which meet the aggregation criteria in ASC 280-10-50-11, it would be expected to disclose at least 15 operating segments as reportable (i.e., 15 segments each having 5% of consolidated revenue).

25.6.4 “All other” segments category

The remaining non-reportable operating segments and other business activities that are not identified as operating segments should be combined and disclosed in an “all other” standalone category. Non-reportable segments should not be combined with a reportable segment unless the aggregation criteria in ASC 280-10-50-11 have been met. The “all other” category should be presented alongside the reporting entity’s reportable segments. However, the “all other” category should not be identified as a reportable segment itself. Additionally, the “all other” category should not include, or be a part of, the other reconciling items. See FSP 25.7.5 for further discussion of reconciling items that are needed to bridge the totals from reportable segments and the “all other category” to consolidated financial statement totals.
While ASC 280 allows for combined reporting of non-reportable operating segments in an “all other” category, a reporting entity is not precluded from separately presenting an operating segment that is below the quantitative thresholds if the reporting entity believes it is important to financial statement users.
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