ACCOUNTING STANDARDS AS 17 – Segment Reporting

AS 17 – SEGMENT REPORTING
CONCEPT 1 : APPLICABILITY
 AS 17 is mandatory in respect of non-SMCs & level I entities in case of non-corporates.
 Other entities are encouraged to comply with AS 17.

CONCEPT 2 : OBJECTIVE
 Many enterprises
Provide different types of products & services or
operate in different geographical areas
that are subject to differing rates of profitability, opportunities for growth, future prospects & risks.
 Objective is to establish principles for reporting financial information, about different types of
products & services an enterprise produces & different geographical areas in which it operates.
 Such information helps users of financial statements:
[a] To understand the performance;
[b] Assess risks & returns; and
[c] Make more informed judgments about the enterprise as a whole.

CONCEPT 3 : SCOPE
 AS 17 should be applied in presenting general purpose FS.
 An enterprise should comply with the requirements of this Standard fully & not selectively.
 If a single financial report contains both CFS & separate financial statements of parent, segment
information needs to be presented only on the basis of CFS.

CONCEPT 4 : DEFINITION OF THE TERMS USED IN AS

Sr. no. Terms Explanation
1] Business  Distinguishable component of an enterprise
segment engaged in providing individual or group of related products/services &
that is subject to risks & returns
that are different from other business segments.
 Factors to determine whether products or services are related, include :
a] Nature of products or services.
b] Nature of production processes.
c] Type or class of customers for products or services.
d] Methods used to distribute the products or provide services.
e] If applicable, nature of the regulatory environment.
 Example : Banking, insurance, or public utilities.
2] Geographical  Distinguishable component of an enterprise
segment that is engaged in providing products or services within a particular economic
environment &
that is subject to risks & returns
that are different from those of components operating in other economic
environments.
 Factors to identify geographical segments :
a] Similarity of economic and political conditions.
b] Relationships between operations in different geographical areas.
c] Proximity of operations.

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ACCOUNTING STANDARDS AS 17 – Segment Reporting
d] Special risks associated with operations in a particular area.
e] Exchange control regulations and
f] The underlying currency risks.
g] It may be a single country, group of two/more countries or region within a
country.
 Geographical segments are based on either :
a] The location of production/service facilities & other assets of an enterprise; or
b] The location of its customers.
3] Reportable  Business segment or geographical segment identified on the basis of above
Segment definitions for which segment information is required to be disclosed by AS 17.

CONCEPT 5 : SEGMENT REVENUE

Portion of enterprise’s revenue, that is

Directly Revenue from

attributable or Revenue from transactions Segment
allocable to external with other Revenue
segment on customers segments of
reasonable basis. enterprise.

Segment Revenue does not include :

[a] Extraordinary [b] Interest or dividend income [c] Gains on :

items (AS 5) including interest earned on a] Sales of investments or
advances to other segments b] Extinguishment of debt.

Included, if : Segment operations are primarily of financial nature.

CONCEPT 6 : SEGMENT EXPENSE

Portion of enterprise’s expense, that is

Allocable to a Expense due to

Directly segment on transactions Segment
attributable to a reasonable with other Expense
segment. basis. segments of
enterprise.

Segment Expense does not include :

Extraordina Interest expense including Losses on : Income Costs at the

ry items (AS interest on advances from c] Sales of investments or Tax enterprise
5) other segments d] Extinguishment of debt. Expense level.

Included, if :
Included, if : Segment operations Incurred on behalf of segment &
are primarily of financial nature. Is directly attributable/allocable to segment

Example : General administrative expenses, HO expenses,

etc.
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Segment Segment Segment

Result Revenue Expenses

CONCEPT 7 : SEGMENT ASSETS & LIABILITIES

Segment Assets Operating assets that are employed by a segment in its operating activities &
that are :

Directly attributable to the segment OR Allocated to segment on reasonable basis

Includes : Excludes :
Receivables, loans, investments or other  Income tax assets,
assets whose interest or dividend is  Assets used for general enterprise or
included in segment result. HO purposes.

Segment Liabilities Operating liabilities resulting from operating activities of segment & that are:

Directly attributable to the segment OR Allocated to segment on reasonable basis

Includes : Excludes :
Related interest bearing liabilities whose  Income tax liabilities,
interest expense is included in segment  Borrowings or other liabilities incurred for
result. financing rather than operating purposes.

CONCEPT 8 : TREATMENT OF INTEREST FOR DETERMINING SEGMENT EXPENSE

 Interest expense relating to :
a] Overdrafts &
b] Other operating liabilities identified to a particular segment
should not be included as a part of segment expense.
 Exceptions (Such interest forms part of segment expense) :
a] Operations of segment are primarily of a financial nature or
b] Interest is included as a part of the cost of inventories.
 Disclosure :
Amount of such interest &
The fact that the segment result has been arrived after considering such interest.

CONCEPT 9 : DECIDING PRIMARY & SECONDARY SEGMENT REPORTING FORMATS

 It is important to know which is primary & secondary segment reporting format for disclosure
purpose.
 For this decision making, following are the important factors :
a] Dominant source &
b] Nature of risks and returns of an enterprise.
 Internal organization & management structure of an enterprise & its system of internal financial
reporting to BOD & CEO is the basis for identifying predominant source & nature of risks and returns.

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Risks & Returns of an enterprise

Affected by differences in Affected by operation in

the products & services different geographical areas

Primary format = Primary format =

Business segment Geographical segment

Business segment & Geographical segment

Both are dominant (Matrix presentation – Concept

10)

Primary segment reporting format Secondary segment reporting format

Business Segment Geographical Segment

CONCEPT 10 : MATRIX PRESENTATION

 If risks & returns are strongly affected both
a] by differences in products & services &
b] by differences in geographical areas in which it operates,
both business & geographical segments are presented as primary segment reporting formats
with full segment disclosures on each basis.
 This is 'Matrix presentation'.
 AS 17 does not require, but does not prohibit, a 'matrix presentation'.

CONCEPT 11 : BUSINESS & GEOGRAPHICAL SEGMENTS

 Business, geographical segments are determined based on internal financial reporting to BOD & CEO.
 But if such segment does not satisfy the definitions given in AS, following points should be considered:
Sr. no. Steps Explanation
1] Further  If one or more segments reported internally to directors &
segmentation management is a business segment or a geographical segment based
on the factors in the definitions but others are not, apply Step 2 only
to those that do not meet the definitions.
 It means, internally reported segment that meets the definition
should not be further segmented.
2] Lower level internal  For those internally reported segments that do not satisfy the
segmentation definitions, management should look to the next lower level of
internal segmentation that reports information along product &
service lines or geographical lines, as appropriate.
3] Classification of  If such an internally reported lower-level segment meets the
segments definition of business segment or geographical segment, criteria for
identifying reportable segments should be applied to that segment.

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CONCEPT 12 : IDENTIFYING REPORTABLE SEGMENTS (Quantitative Thresholds)
 A business or geographical segment is identified as a reportable segment if any of the test satisfies :
[a] Revenue Test :
Segment Revenue (external sales + transactions with other segments) > 10% *Total revenue of all
segments (external + internal); or
[b] Result Test :
Segment result (profit or loss) > 10% * Higher of :
[i] The combined result of all segments in profit, or
Consider absolute amount
[ii] The combined result of all segments in loss; or
[c] Assets Test :
Segment assets > 10% * Total assets of all segments.
[d] 75% Test :
If total external revenue of reportable segments < 75% *Total enterprise revenue,
Additional segments are identified as reportable segments, until
Total external revenue of reportable segments > 75% *Total enterprise revenue
 Note :
Even if, additional segments do not meet 10% thresholds, they can be added.
[e] Management’s discretion :
 If all above tests are not satisfied, management may designate any segment as a reportable segment
despite its size.
 If that segment is not designated as reportable segment, it should be included as an unallocated
reconciling item.

 Notes :
1] Segment identified as reportable segment in immediately preceding period should continue to be a
reportable segment for the current period even if it does not meet 10% thresholds criteria.
2] Comparatives :
If a segment is identified as a reportable segment in the current period,
Preceding - period segment data that is presented for comparative purposes
should be restated to reflect newly reportable segment as separate segment,
even if that segment did not satisfy the 10% thresholds in the preceding period,
unless it is impracticable to do so.

CONCEPT 13 : SEGMENT ACCOUNTING POLICIES

 Accounting policies adopted for preparing & presenting FS of the enterprise as a whole, should be used
to prepare segment information.
 However, segment information can be prepared using some other basis& should be disclosed, provided
a] The information is reported internally to BOD & CEO for making decisions about allocating
resources to the segment & assessing its performance and
b] The basis of measurement for this additional information is clearly described.

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ACCOUNTING STANDARDS AS 17 – Segment Reporting
CONCEPT 14 : DISCLOSURES
Primary Reporting Format
 An enterprise should disclose the following for each reportable segment:
[a] Segment revenue, classified into :
i] Segment revenue from sales to external customers &
ii] Segment revenue from transactions with other segments;
[b] Segment result;
[c] Total carrying amount of segment assets;
[d] Total amount of segment liabilities;
[e] Total cost incurred during the period to acquire segment assets that are expected to be used during
more than one period (tangible and intangible fixed assets);
[f] Total amount of expense included in the segment result for depreciation and amortisation in respect of
segment assets for the period; and
[g] Total amount of significant non-cash expenses other than depreciation & amortization w.r.t. segment
assets that were included in segment expense & therefore, deducted in measuring segment result.
 No need to disclose depreciation & amortization expense & non-cash expenses :
 If an enterprise reports CFs arising from operating, investing & financing activities of a segment.
 Present a reconciliation between the information disclosed for reportable segments & aggregated
information in enterprise FS.
 In presenting the reconciliation,
a] Segment revenue should be reconciled to enterprise revenue;
b] Segment result should be reconciled to enterprise net profit or loss;
c] Segment assets should be reconciled to enterprise assets; and
d] Segment liabilities should be reconciled to enterprise liabilities.

Secondary Segment Information

 If primary format for reporting segment information is business segment, report following
information:
[a] Segment revenue from external customers by geographical area based on geographical location of
customers, for each geographical segment whose revenue from sales to external customers is 10% or
more of enterprise revenue;
[b] The total carrying amount of segment assets by geographical location of assets, for each geographical
segment whose segment assets are 10% or more of the total assets of all geographical segments; and
[c] Total cost incurred during the period to acquire segment assets that are expected to be used during
more than one period (tangible & intangible fixed assets) by geographical location of assets, for each
geographical segment whose segment assets are 10%/more of total assets of all geographical segments.
 If primary format for reporting segment information is geographical segment, report following
information for each business segment :
 Whose revenue from sales to external customers is 10% or more of enterprise revenue or
 Whose segment assets are 10% or more of the total assets of all business segments:
[a] Segment revenue from external customers;
[b] The total carrying amount of segment assets; and
[c] The total cost incurred during the period to acquire segment assets that are expected to be used during
more than one period (tangible & intangible fixed assets).

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ACCOUNTING STANDARDS AS 17 – Segment Reporting
 If primary format for reporting segment information is geographical segments based on location of
assets & if the location of customers is different from the location of its assets,
 Then also report revenue from sales to external customers for each customer-based geographical
segment whose revenue from sales to external customers is 10% or more of enterprise revenue.
 If primary format for reporting segment information is geographical segments based on location of
customers & if the assets of enterprise are located in different geographical areas from its customers,
 Then also report the following segment information for each asset-based geographical segment whose
revenue from sales to external customers or segment assets are 10% or more of total enterprise
amounts :
[a] The total carrying amount of segment assets by geographical location of the assets.
[b] The total cost incurred during the period to acquire segment assets that are expected to be used during
more than one period (tangible and intangible fixed assets) by location of the assets.

Other Disclosures
 Inter-segment transfers should be measured on the basis that the enterprise actually used to price
those transfers.
Basis of pricing inter-segment transfers & any change therein should be disclosed in FS.
 Changes in accounting policies that have material effect on segment information should be disclosed.
Such disclosure should include:
a] Description of the nature of change, and
b] Financial effect of the change if it is reasonably determinable.
 Some changes in accounting policies may relate specifically to segment reporting.
 Example could be :
 Changes in identification of segments; and
 Changes in the basis for allocating revenues and expenses to segments.
- Such changes can have significant impact on segment information reported but will not change
aggregate financial information reported for the enterprise.
 Enterprise should indicate the types of products & services included in each reported business segment
indicate the composition of each reported geographical segment,
both primary and secondary,
if not otherwise disclosed in the financial statements.
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ANNUAL REPORTS (EXTRACTS)
INFOSYS LTD
 BUSINESS SEGMENTS REPORTING
Business segments of the Company are primarily enterprises in Financial Services (FS), enterprises in
Manufacturing (MFG), enterprises in Retail, Consumer packaged goods and Logistics (RCL), enterprises in the
Energy & utilities, Communication and Services (ECS), enterprises in Hi-tech (Hi-Tech), enterprises in Life Sciences,
Healthcare and Insurance (HILIFE) and all other segments. The FS reportable segments has been aggregated to
include the Financial Services operating segment and the Finacle operating segment because of the similarity of the
economic characteristics. All other segments represents the operating segments of businesses in India, Japan and
China. Geographic segmentation is based on business sourced from that geographic region and delivered from both
on site and off shore locations. North America comprises the United States of America, Canada and Mexico, Europe
includes continental Europe (both the east and the west), Ireland and the United Kingdom, and the Rest of the
World comprising all other places except those mentioned above and India.

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ACCOUNTING STANDARDS AS 17 – Segment Reporting
Revenue & identifiable operating expenses in relation to segments are categorized based on items that are
individually identifiable to that segment. Revenue for 'all other segments' represents revenue generated from
customers located in India, Japan & China. Allocated expenses of segments include expenses incurred for rendering
services from Company's offshore software development centres & on-site expenses, which are categorized in
relation to the associated turnover of the segment. Certain expenses such as depreciation, which form a significant
component of total expenses, are not specifically allocable to specific segments as the underlying assets are used
interchangeably. The Management believes that it is not practical to provide segment disclosures relating to those
costs & expenses, & accordingly these expenses are separately disclosed as 'unallocated’ & adjusted against total
income of Company.
Assets and liabilities used in the Company's business are not identified to any of the reportable segments, as these
are used interchangeably between segments. The Management believes that it is currently not practicable to provide
segment disclosures relating to total assets and liabilities since a meaningful segregation of the available data is
onerous. Geographical information on revenue and business segment revenue information is collated based on
individual customers invoiced or in relation to which the revenue is otherwise recognized.
 Business segments
For the years ended March 31, 2018 and March 31, 2017 :
Particulars FS MFG ECS RCL HILIFE HITECH Other Total
Segments
Revenue from operations 15,860 6.485 15,457 10,247 7,825 4,782 1,285 61,941
15,735 6,086 13,999 10,280 7.065 4,901 1,223 59,289
Identifiable operating 8,628 3,523 7,957 5,118 3,946 2,582 659 32,413
expenses
8,408 3,136 6,931 5,127 3,607 2,595 788 30,592
Allocated expenses 2,964 1,221 2,909 1,929 1,474 901 242 11,640
3,036 1,180 2,713 1,994 1,369 952 236 11,480
Segment operating income 4,268 1,741 4,591 3,200 2,405 1,299 384 17,888
4,291 1,770 4,355 3,159 2,089 1,354 199 17,217
Unallocable expenses 1,410
1,341
Operating profit 16,478
15,876
Impairment loss on assets 589
held for sale (Refer to Note
2.26)
Other income, net 4,019
3,062
Profit before tax 19,908
18,938
Tax expense 3,753
5,120
Profit for the year 16,155
13,818
Depreciation and 1,408
amortization expense
1,331
Non-cash expenses other 713
than depreciation and
amortization
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 Geographic segments
For the years ended March 31, 2018 and March 31, 2017
Particulars North Europe India Rest of the Total
America world
Revenue from operations 38,984 14,426 1,861 6,670 61,941
38,578 13,019 1,798 5,894 59,289
Identifiable operating expenses 20,761 7,702 649 3,301 32,413
20,337 6,664 786 2,805 30,592
Allocated expenses 7,339 2,713 348 1,240 11,640
7,489 2,523 345 1,133 11,480
Segment operating income 10,884 4,011 864 2,129 17,888
10,762 3,832 667 1,956 17,217
Unallocable expenses 1,410
1,341
Operating profit 16,478
15,876
Impairment loss on assets held for sale (Refer to Note 589
2.26)
-
Other income, net 4,019
3,062
Profit before tax 19,908
18,938
Tax expense 3,753
5,120
Profit for the year 16,155
13,818
Depreciation and amortization expense 1,408
1,331
Non-cash expenses other than depreciation and 713
amortization
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