Segment Reporting Under AS-17

AS-17 is applicable with:

  • Enterprises whose equity or debt securities are listed on a recognised stock exchange in India, and enterprises that are in the process of issuing equity or debt securities that will be listed on a recognised stock exchange in India as evidenced by the board of directors’ resolution in this regard.
  • All other commercial, industrial and business reporting enterprises, whose turnover for the accounting period exceeds 50 crores.

This standard establishes principles for reporting financial information about different types of products and services an enterprise produces and different geographical areas in which it operates. The information is expected to help users of financial statements, to better understand the performance and assess the risks and returns of the enterprise and make more informed judgements about the enterprise as a whole. The standard is more relevant for assessing risks and returns of a diversified or multilocational enterprise which may not be determinable from the aggregated data.

Objective

Many enterprises provide groups of products and services or operate in geographical areas that are subject to differing rates of profitability, opportunities for growth, future prospects, and risks. The objective of this Statement is to establish principles for reporting financial information, about the different types of products and services an enterprise produces and the different geographical areas in which it operates. Such information helps users of financial statements:

  • Better understand the performance of the enterprise;
  • Better assess the risks and returns of the enterprise; and
  • Make more informed judgements about the enterprise as a whole.

Definition of the terms used in the Accounting Standard

  • A business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. Factors that should be considered in determining whether products or services are related include:
    • The nature of the products or services. The nature of the production processes.
    • The type or class of customers for the products or services;.
    • The methods used to distribute the products or provide the services and
    • If applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.

A single business segment does not include products and services with significantly differing risks and returns. While there may be dissimilarities with respect to one or several of the factors listed in the definition of business segment, the products and services included in a single business segment are expected to be similar with respect to a majority of the factors.

  • A geographical segment is a distinguishable component of an enterprise that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments. Factors that should be considered in identifying geographical segments include:
    • Similarity of economic and political conditions.
    • Relationships between operations in different geographical areas.
    • Proximity of operations.
    • Special risks associated with operations in a particular area.
    • Exchange control regulations and
    • The underlying currency risks.

A single geographical segment does not include operations in economic environments with significantly differing risks and returns. A geographical segment may be a single country, a group of two or more countries, or a region within a country. The risks and returns of an enterprise are influenced both by the geographical location of its operations and also by the location of its customers. The definition allows geographical segments to be based on either:

  • The location of production or service facilities and other assets of an enterprise; or
  • The location of its customers.
  • A reportable segment is a business segment or a geographical segment identified on the basis of foregoing definitions for which segment information is required to be disclosed by this Statement.

The predominant sources of risks affect how most enterprises are organised and managed. Therefore, the organisational structure of an enterprise and its internal financial reporting system are normally the basis for identifying its segments.

  • Segment revenue is the aggregate of
    • The portion of enterprise revenue that is directly attributable to a segment,
    • The relevant portion of enterprise revenue that can be allocated on a reasonable basis to a segment, and
    • Revenue from transactions with other segments of the enterprise.
  • Segment expense is the aggregate of
    • The expense resulting from the operating activities of a segment that is directly attributable to the segment, and
    • The relevant portion of enterprise expense that can be allocated on a reasonable basis to the segment,
    • Including expense relating to transactions with other segments of the enterprise.
  • Segment assets are those operating assets that are employed by a segment in its operating activities and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis.

If the segment result of a segment includes interest or dividend income, its segment assets include the related receivables, loans, investments, or other interest or dividend generating assets. Segment assets are determined after deducting related allowances/provisions that are reported as direct offsets in the balance sheet of the enterprise.

  • Segment liabilities are those operating liabilities that result from the operating activities of a segment and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis.

If the segment result of a segment includes interest expense, its segment liabilities include the related interest-bearing liabilities.

Liabilities that relate jointly to two or more segment should be allocated to segments if, and only if, their related revenues and expenses also are allocated to those segments.

Examples of segment liabilities include trade and other payables, accrued liabilities, customer advances, product warranty provisions, and other claims relating to the provision of goods and services.

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