ICAI Notes- Unit 3: Presentation & Disclosures Based Accounting Standards | Advanced Accounting for CA Intermediate PDF Download

 Page 1


 
 
 
4.40 
ADVANCED ACCOUNTING 
 
? 
LEARNING OUTCOMES 
UNIT 3: ACCOUNTING STANDARD 17                        
SEGMENT REPORTING 
 
 
After studying this unit, you will be able to comprehend the- 
? Definition and Identification of Reportable Segments  
? Primary and Secondary Segment Reporting Formats  
? Business and Geographical Segments  
? How to identify the Reportable Segments  
? Disclosures. 
 3.1 INTRODUCTION 
AS 17 is mandatory in respect of non-SMCs (and level I entities in case of non-
corporates). Other entities are encouraged to comply with AS 17. 
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 standard is more relevant for assessing 
risks and returns of a diversified or multi-locational enterprise which may not be 
determinable from the aggregated data. 
Before we start the standard, let us lay down the areas to be covered from the 
examination point of view. 
© The Institute of Chartered Accountants of India
Page 2


 
 
 
4.40 
ADVANCED ACCOUNTING 
 
? 
LEARNING OUTCOMES 
UNIT 3: ACCOUNTING STANDARD 17                        
SEGMENT REPORTING 
 
 
After studying this unit, you will be able to comprehend the- 
? Definition and Identification of Reportable Segments  
? Primary and Secondary Segment Reporting Formats  
? Business and Geographical Segments  
? How to identify the Reportable Segments  
? Disclosures. 
 3.1 INTRODUCTION 
AS 17 is mandatory in respect of non-SMCs (and level I entities in case of non-
corporates). Other entities are encouraged to comply with AS 17. 
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 standard is more relevant for assessing 
risks and returns of a diversified or multi-locational enterprise which may not be 
determinable from the aggregated data. 
Before we start the standard, let us lay down the areas to be covered from the 
examination point of view. 
© The Institute of Chartered Accountants of India
 
 
PRESENTATION & DISCLOSURES BASED 
ACCOUNTING STANDARDS 
 
    
v 
 
4.41 
 
 
 3.2 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 Standard 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:  
(a) Better understand the performance of the enterprise; 
(b) Better assess the risks and returns of the enterprise; and 
(c) Make more informed judgements about the enterprise as a whole.  
 3.3 SCOPE 
AS 17 should be applied in presenting general purpose financial statements. 
An enterprise should comply with the requirements of this Standard fully and not 
selectively. If a single financial report contains both consolidated financial 
statements and separate financial statements of the parent, segment information 
need be presented only on the basis of the consolidated financial statements. 
Identify the Segments - Business or Geographical 
Identify the Reportable Segments 
Prepare a Segmental Report + Make appropriate Disclosures 
© The Institute of Chartered Accountants of India
Page 3


 
 
 
4.40 
ADVANCED ACCOUNTING 
 
? 
LEARNING OUTCOMES 
UNIT 3: ACCOUNTING STANDARD 17                        
SEGMENT REPORTING 
 
 
After studying this unit, you will be able to comprehend the- 
? Definition and Identification of Reportable Segments  
? Primary and Secondary Segment Reporting Formats  
? Business and Geographical Segments  
? How to identify the Reportable Segments  
? Disclosures. 
 3.1 INTRODUCTION 
AS 17 is mandatory in respect of non-SMCs (and level I entities in case of non-
corporates). Other entities are encouraged to comply with AS 17. 
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 standard is more relevant for assessing 
risks and returns of a diversified or multi-locational enterprise which may not be 
determinable from the aggregated data. 
Before we start the standard, let us lay down the areas to be covered from the 
examination point of view. 
© The Institute of Chartered Accountants of India
 
 
PRESENTATION & DISCLOSURES BASED 
ACCOUNTING STANDARDS 
 
    
v 
 
4.41 
 
 
 3.2 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 Standard 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:  
(a) Better understand the performance of the enterprise; 
(b) Better assess the risks and returns of the enterprise; and 
(c) Make more informed judgements about the enterprise as a whole.  
 3.3 SCOPE 
AS 17 should be applied in presenting general purpose financial statements. 
An enterprise should comply with the requirements of this Standard fully and not 
selectively. If a single financial report contains both consolidated financial 
statements and separate financial statements of the parent, segment information 
need be presented only on the basis of the consolidated financial statements. 
Identify the Segments - Business or Geographical 
Identify the Reportable Segments 
Prepare a Segmental Report + Make appropriate Disclosures 
© The Institute of Chartered Accountants of India
 
 
 
4.42 
ADVANCED ACCOUNTING 
 
 3.4 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:  
(a) The nature of the products or services 
(b) The nature of the production processes 
(c) The type or class of customers for the products or services 
(d) The methods used to distribute the products or provide the services 
(e) 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:  
(a) Similarity of economic and political conditions. 
(b) Relationships between operations in different geographical areas. 
(c) Proximity of operations. 
(d) Special risks associated with operations in a particular area. 
(e) Exchange control regulations and  
(f) The underlying currency risks. 
© The Institute of Chartered Accountants of India
Page 4


 
 
 
4.40 
ADVANCED ACCOUNTING 
 
? 
LEARNING OUTCOMES 
UNIT 3: ACCOUNTING STANDARD 17                        
SEGMENT REPORTING 
 
 
After studying this unit, you will be able to comprehend the- 
? Definition and Identification of Reportable Segments  
? Primary and Secondary Segment Reporting Formats  
? Business and Geographical Segments  
? How to identify the Reportable Segments  
? Disclosures. 
 3.1 INTRODUCTION 
AS 17 is mandatory in respect of non-SMCs (and level I entities in case of non-
corporates). Other entities are encouraged to comply with AS 17. 
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 standard is more relevant for assessing 
risks and returns of a diversified or multi-locational enterprise which may not be 
determinable from the aggregated data. 
Before we start the standard, let us lay down the areas to be covered from the 
examination point of view. 
© The Institute of Chartered Accountants of India
 
 
PRESENTATION & DISCLOSURES BASED 
ACCOUNTING STANDARDS 
 
    
v 
 
4.41 
 
 
 3.2 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 Standard 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:  
(a) Better understand the performance of the enterprise; 
(b) Better assess the risks and returns of the enterprise; and 
(c) Make more informed judgements about the enterprise as a whole.  
 3.3 SCOPE 
AS 17 should be applied in presenting general purpose financial statements. 
An enterprise should comply with the requirements of this Standard fully and not 
selectively. If a single financial report contains both consolidated financial 
statements and separate financial statements of the parent, segment information 
need be presented only on the basis of the consolidated financial statements. 
Identify the Segments - Business or Geographical 
Identify the Reportable Segments 
Prepare a Segmental Report + Make appropriate Disclosures 
© The Institute of Chartered Accountants of India
 
 
 
4.42 
ADVANCED ACCOUNTING 
 
 3.4 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:  
(a) The nature of the products or services 
(b) The nature of the production processes 
(c) The type or class of customers for the products or services 
(d) The methods used to distribute the products or provide the services 
(e) 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:  
(a) Similarity of economic and political conditions. 
(b) Relationships between operations in different geographical areas. 
(c) Proximity of operations. 
(d) Special risks associated with operations in a particular area. 
(e) Exchange control regulations and  
(f) The underlying currency risks. 
© The Institute of Chartered Accountants of India
 
 
PRESENTATION & DISCLOSURES BASED 
ACCOUNTING STANDARDS 
 
v
v 
v
v 
    
v 
 
4.43 
 
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 (where its products are produced or where its service 
rendering activities are based) and also by the location of its customers (where its 
products are sold or services are rendered). The definition allows geographical 
segments to be based on either:  
(a) The location of production or service facilities and other assets of an 
enterprise; or 
(b) The location of its customers. 
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. 
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 AS 17. 
Segment revenue is the aggregate of  
(i) The portion of enterprise revenue that is directly attributable to a segment; 
(ii) The relevant portion of enterprise revenue that can be allocated on a 
reasonable basis to a segment; and 
(iii) Revenue from transactions with other segments of the enterprise.  
Segment revenue does not include:  
(a) Extraordinary items as defined in AS 5; 
(b) Interest or dividend income, including interest earned on advances or loans to 
other segments unless the operations of the segment are primarily of a financial 
nature; and 
(c) Gains on sales of investments or on extinguishment of debt unless the 
operations of the segment are primarily of a financial nature.  
© The Institute of Chartered Accountants of India
Page 5


 
 
 
4.40 
ADVANCED ACCOUNTING 
 
? 
LEARNING OUTCOMES 
UNIT 3: ACCOUNTING STANDARD 17                        
SEGMENT REPORTING 
 
 
After studying this unit, you will be able to comprehend the- 
? Definition and Identification of Reportable Segments  
? Primary and Secondary Segment Reporting Formats  
? Business and Geographical Segments  
? How to identify the Reportable Segments  
? Disclosures. 
 3.1 INTRODUCTION 
AS 17 is mandatory in respect of non-SMCs (and level I entities in case of non-
corporates). Other entities are encouraged to comply with AS 17. 
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 standard is more relevant for assessing 
risks and returns of a diversified or multi-locational enterprise which may not be 
determinable from the aggregated data. 
Before we start the standard, let us lay down the areas to be covered from the 
examination point of view. 
© The Institute of Chartered Accountants of India
 
 
PRESENTATION & DISCLOSURES BASED 
ACCOUNTING STANDARDS 
 
    
v 
 
4.41 
 
 
 3.2 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 Standard 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:  
(a) Better understand the performance of the enterprise; 
(b) Better assess the risks and returns of the enterprise; and 
(c) Make more informed judgements about the enterprise as a whole.  
 3.3 SCOPE 
AS 17 should be applied in presenting general purpose financial statements. 
An enterprise should comply with the requirements of this Standard fully and not 
selectively. If a single financial report contains both consolidated financial 
statements and separate financial statements of the parent, segment information 
need be presented only on the basis of the consolidated financial statements. 
Identify the Segments - Business or Geographical 
Identify the Reportable Segments 
Prepare a Segmental Report + Make appropriate Disclosures 
© The Institute of Chartered Accountants of India
 
 
 
4.42 
ADVANCED ACCOUNTING 
 
 3.4 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:  
(a) The nature of the products or services 
(b) The nature of the production processes 
(c) The type or class of customers for the products or services 
(d) The methods used to distribute the products or provide the services 
(e) 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:  
(a) Similarity of economic and political conditions. 
(b) Relationships between operations in different geographical areas. 
(c) Proximity of operations. 
(d) Special risks associated with operations in a particular area. 
(e) Exchange control regulations and  
(f) The underlying currency risks. 
© The Institute of Chartered Accountants of India
 
 
PRESENTATION & DISCLOSURES BASED 
ACCOUNTING STANDARDS 
 
v
v 
v
v 
    
v 
 
4.43 
 
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 (where its products are produced or where its service 
rendering activities are based) and also by the location of its customers (where its 
products are sold or services are rendered). The definition allows geographical 
segments to be based on either:  
(a) The location of production or service facilities and other assets of an 
enterprise; or 
(b) The location of its customers. 
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. 
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 AS 17. 
Segment revenue is the aggregate of  
(i) The portion of enterprise revenue that is directly attributable to a segment; 
(ii) The relevant portion of enterprise revenue that can be allocated on a 
reasonable basis to a segment; and 
(iii) Revenue from transactions with other segments of the enterprise.  
Segment revenue does not include:  
(a) Extraordinary items as defined in AS 5; 
(b) Interest or dividend income, including interest earned on advances or loans to 
other segments unless the operations of the segment are primarily of a financial 
nature; and 
(c) Gains on sales of investments or on extinguishment of debt unless the 
operations of the segment are primarily of a financial nature.  
© The Institute of Chartered Accountants of India
 
 
 
4.44 
ADVANCED ACCOUNTING 
 
Segment expense is the aggregate of  
(i) The expense resulting from the operating activities of a segment that is 
directly attributable to the segment;  
(ii) The relevant portion of enterprise expense that can be allocated on a 
reasonable basis to the segment; and 
(iii) Including expense relating to transactions with other segments of the enterprise.  
Segment expense does not include:  
(a) Extraordinary items as defined in AS 5; 
(b) Interest expense, including interest incurred on advances or loans from other 
segments, unless the operations of the segment are primarily of a financial nature; 
(c) Losses on sales of investments or losses on extinguishment of debt unless the 
operations of the segment are primarily of a financial nature; 
(d) Income tax expense; and 
(e) General administrative expenses, head-office expenses, and other expenses that 
arise at the enterprise level and relate to the enterprise as a whole. However, 
costs are sometimes incurred at the enterprise level on behalf of a segment. Such 
costs are part of segment expense if they relate to the operating activities of the 
segment and if they can be directly attributed or allocated to the segment on a 
reasonable basis. 
Segment result is segment revenue less segment expense. 
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 do not include: 
? income tax assets; and 
? assets used for general enterprise or head-office purposes. 
 
© The Institute of Chartered Accountants of India