Business Segment Reporting
What Is Business Segment Reporting?
Business segment reporting breaks out a company's financial data by company divisions, subsidiaries, or different sorts of business segments. In an annual report, business segment reporting gives an accurate picture of a public company's performance to its shareholders. Management utilizes business segment reporting to assess the income, expenses, assets, and liabilities of every business division to evaluate its overall wellbeing — including profitability and possible traps.
Understanding Business Segment Reporting
A segment is a part of a business that produces its own revenues and makes its own product, product lines, or service offerings. As a general rule, on the off chance that a unit of a business can be lifted out of the larger company and stay an independent entity, then, at that point, it could be classified as a business segment.
The Financial Accounting Standards Board (FASB) sets the accounting standards for business segment reporting. FASB Accounting Standards Codification (ASC) 280-10-10-1 expects that all segments of a company's business line up with the company's reporting structure. All a company doesn't have to report its business segments, in any case. As indicated by U.S. Generally Accepted Accounting Principles (GAAP), public companies must report a segment in the event that it accounts for 10% of total incomes, 10% of total profits, or 10% of total assets. International standards contrast fairly.
The Importance of Business Segment Reporting
For Shareholders and Management
Segment reporting can help a company's shareholders gain a complete image of the association's operations. Segment reporting adds a definite point of view that is critical for upper management's direction.
For Investors
Segment reporting gives data about the various types of business activities in which a public company draws in and the different economic conditions in which it works. This data helps investors to
- better get it and assess a company's performance,
- evaluate its possibilities for future net cash flows,
- grasp the business as a whole,
- make more educated decisions about the company, and
- settle on clearer conclusions about their investments.
Business segment reporting generally shows up as a series of footnotes to a company's financial statements. Investors and other financial statement users view the segment commentary as vital to their investment choices.
Illustration of Business Segment Reporting
Most large banks are included numerous divisions in light of their different business capabilities. For instance, say a bank has three divisions: consumer lending, commercial lending, and credit cards. While arranging the bank's financial statements, its financial officer would be required to separate every one of the three of these divisions in terms of their income things as well as the assets listed on the balance sheet.
In the wake of breaking them out, the officer then would consolidate each of the divisions into a large income statement and balance sheet. This outcomes in a set of consolidated financials, which is simpler to peruse. In any case, to peruse further into the numbers gave, then, at that point, they would have the option to see which business segments were best. On the off chance that the bank had operations in both North America and Latin America, it could report on those separately also.
Features
- The Financial Accounting Standards Board (FASB) sets the accounting standards for business segment reporting.
- Business segment reporting offers a complete image of a company's operations for shareholders, upper management, and investors — which can be important for their independent direction.
- Business segment reporting breaks out a public company's financial data by company divisions, auxiliaries, or different sorts of business segments.
