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Chapter 13 - SEGMENT AND INTERIM REPORTING
CHAPTER 13
SEGMENT AND INTERIM REPORTING
OVERVIEW OF CHAPTER
Chapter 13 presents the financial disclosure standards for reporting segments and for
interim reports. Interim reports frequently are referred to as “quarterly reports,” however, interim
reports may cover time periods of less than three months. The Peerless Products Corporation and
its subsidiary, Special Foods, Inc., a continuous case used throughout the consolidations chapters
is used to illustrate both segment and interim reporting disclosures.
The chapter first presents operating segment reporting and discusses the rules and
procedures consistent with ASC 280. Segment reports may be presented in a separate schedule
or in footnotes. It is important to note that the segment disclosures are based on the same
measures used by the chief operating decision maker to internally evaluate the operating
performance of the segments. Separately reportable operating segments are defined using the
three 10% significance tests: (1) the revenue test, (2) the profit or loss test, and (3) the assets test.
Students may focus on what is included in the numerator and denominator of each of these three
tests until their computation of the three tests becomes relatively routine. The comprehensive
disclosure test, which is based on a 75% consolidated revenue test is also explained and
illustrated.
In addition to the disclosures regarding the operating segments, ASC 280 requires
disclosures of the revenues from each major product or product line, disclosures about
geographic areas including foreign operations, and disclosures about major customers. ASC 280
also requires that interim as well as annual reports present segment disclosures.
After students understand that interim reporting is based primarily on the integral view
and that many estimates may be required when preparing the interim report, the disclosure
standards in ASC 270 will become evident and the illustrations of the more technical aspects of
interim reporting, such as inventory valuations and taxes, will become easier to understand.
Chapter 13 - SEGMENT AND INTERIM REPORTING
13-2
LEARNING OBJECTIVES
When students finish studying this chapter, they should be able to:
LO 13-1 Understand accounting issues associated with segment reporting both in the
United States and internationally.
LO 13-2 Understand and be able to calculate threshold tests for segment reporting.
LO 13-3 Understand the requirements for enterprisewide disclosures.
LO 13-4 Understand the rules for interim financial reporting.
SYNOPSIS OF CHAPTER 13
Segment and Interim Reporting
Segment Reporting at Walmart
LO 13-1 Understand accounting issues associated with segment reporting both in the United
States and internationally.
Reporting for Segments
Segment Reporting Accounting Issues
International Financial Reporting Standards for Operating Segments
LO 13-2 Understand and be able to calculate threshold tests for segment reporting.
Information about Operating Segments
Defining Reportable Segments
Comprehensive Disclosure Test
Reporting Segment Information
LO 13-3 Understand the requirements for enterprisewide disclosures.
Enterprisewide Disclosures
Information about Products and Services
Information about Geographic Areas
Information about Major Customers
LO 13-4 Understand the rules for interim financial reporting.
Interim Financial Reporting
The Format of the Quarterly Financial Report
Accounting Issues
Accounting Pronouncements on Interim Reporting
International Financial Reporting Standards for Interim Reporting
Chapter 13 - SEGMENT AND INTERIM REPORTING
13-3
Reporting Standards for Interim Income Statements
Revenue
Cost of Goods Sold and Inventory
All Other Costs and Expenses
Accounting for Income Taxes in Interim Periods
Disposal of a Component of the Entity or Extraordinary, Unusual,
Infrequently Occurring, and Contingent Items
Accounting Changes in Interim Periods
Change in an Accounting Principle (Retrospective Application)
Change in an Accounting Estimate (Current and Prospective Application)
Change in a Reporting Entity (Retrospective Application)
International Financial Reporting Standards for Accounting Changes
NOTES ON POWERPOINT SLIDES
We have attempted to provide PowerPoint slides that will be useful to a broad set of users. Since
instructors often have different styles and preferences, we have attempted to include slides that
will accommodate different approaches and that can be adapted to classes with different levels of
preparation. For example, some instructors prefer to introduce the material before students have
read the chapter. We have tried to facilitate these types of introductory discussions by including
slides that replicate key points from the chapter. Other instructors expect students to have read
the chapter and attempted homework problems before coming to class. As a result, they may not
find it useful to review all of the topics in the chapter or to include slides that simply review
many of the details they expect students to study before class. However, instructors following
this approach often like to use sample exercises and problems built into the slides that allow
them to have extended discussions or to facilitate group interaction in class.
If instructors elect to spend two class periods on the same subject, they might find a combination
of both styles to be useful by first introducing foundational material before students have read
the chapter and studied the topic, followed by an extended discussion the next class period after
students have read the chapter and attempted homework problems.
We have tried to develop slides that can facilitate a flexible approach to allow instructors to
select the slides that best match their objectives and style for class discussions. This is the reason
we are including over 100 slides for some chapters in the text. We do not expect all instructors
to use all slides, but the slide files should help support different teaching approaches and allow
instructors to select the subset of slides that best matches their specific discussion objectives.
The slides are organized by learning objective. We have included a slide at the beginning of
each learning objective to show where the new material begins. Instructors may or may not want
to use these learning objective slides in class. We provide them primarily as a way of organizing
the material. We also include short multiple-choice questions at the end of most learning
objectives. Some instructors find it useful to pause periodically during class to assess students’
level of understanding. For this reason, we include several “practice quiz questions” that can be
used throughout class discussions to engage students, help them focus on key points, or to
facilitate group interaction. Finally, we provide longer exercises and problems that many
Chapter 13 - SEGMENT AND INTERIM REPORTING
13-4
instructors find useful in assessing understanding and encouraging group learning.
LO 13-1 Understand accounting issues associated with segment reporting both in the United
States and internationally.
• Slides 3-5 introduce broad issues associated with segment reporting.
LO 13-2 Understand and be able to calculate threshold tests for segment reporting.
• Slides 9-15 present the 10 percent threshold tests.
• Slides 16-20 explain the comprehensive 75 percent revenue test and additional
considerations related to the determination of whether a segment should be presented
separately.
LO 13-3 Understand the requirements for enterprisewide disclosures.
• Slides 24-29 summarize enterprisewide disclosure requirements about (1) products
and services, (2) geographic areas in which the company operates, and (3) major
customers.
LO 13-4 Understand the rules for interim financial reporting.
• Slides 33-36 summarize requirements for interim reporting.
• Slides 37-39 explain other accounting issues related to interim reporting.
• Slides 40-42 outline issues related to the interim reporting of specific line items
(revenues, cost of goods sold, and other costs and expenses).
• Slides 43-46 provide an illustration of temporary LIFO liquidation.
• Slides 47-50 provide an illustration of Market Write-down and recovery.
• Slide 51 summarizes the interim income statement reporting standards for all other
costs and expenses.
• Slides 52-55 introduce the allocation of taxes in interim periods.
• Slides 56-57 explain the interim reporting of below-the-line items.
• Slides 58-61 explain the reporting for accounting changes in interim periods.
Chapter 13 - SEGMENT AND INTERIM REPORTING
13-5
TEACHING IDEAS
1. Students could be assigned to review ASC 280 and prepare a written memo discussing
the importance of the management approach to defining segments and establishing the
disclosure requirements.
2. Students could be asked to determine the number and types of separately reportable
operating segments for a Fortune 100 firm.
3. Students could be asked to determine if the interim report data presented in the annual
report footnote of a Fortune 100 company had been restated for any purpose such as
accounting changes or other changes in entity. What are the types of restatements, and are
any of the restatements significant?
4. Students could be asked to determine the fiscal year-end of the companies in the
Accounting Trends & Techniques sample of firms. This information is presented in
"Section 1: General Natural Business Year." Students will find that the majority of the
companies have fiscal year-ends of December. The remaining companies have fiscal
year-ends ranging throughout the calendar year.
Chapter 13 - SEGMENT AND INTERIM REPORTING
13-6
DESCRIPTIONS OF CASES, EXERCISES, AND PROBLEMS
C13-1
LO 13-2
30 min.
M
Segment Disclosures [CMA Adapted]
This case requires determination of the factors to be used for deciding how to
group a new product line with existing products in order to provide the segment
footnote information.
C13-2
LO 13-4
30 min.
M
Matching Revenue and Expenses for Interim Periods
Students must discuss the issues of matching revenues and costs within an
interim report. Several examples of items that often are difficult to account for
are presented and require evaluation.
C13-3
LO 13-2
20 min.
E
Segment Disclosures in the Financial Statement [CMA Adapted]
This case presents selected data for five segments and requires students to
determine which segments are separately reportable and to compute the 75% test
to determine if sufficient segments are separately disclosed.
C13-4
LO 13-3
20 min.
E
Determining Industry and Geographic Segments
This case asks students to assess management's reluctance to make segmental
disclosures and to evaluate the possibility of combining segments to avoid
separate disclosures. Students should also present the requirements under ASC
280 for reporting the segments by geographic area.
C13-5
LO 13-1
45 min.
M
Segment Reporting
This research case requires students to seek out an actual company’s home page
on the web and then use EDGAR to locate the most recent Form 10-K for the
company. Then, students are asked to evaluate the segment disclosures in the
Form 10-K.
C13-6
LO 13-4
45 min.
M
Interim Reporting
This research case requires students to use the Internet or other data source to
obtain the most recent Form 10-Qs for two selected companies, review the
interim reports, and then prepare a memo evaluating the disclosures.
C13-7
LO 13-2
30 min.
M
Defining Segments for Disclosure
Students must research the GAAP requirements regarding segments reporting
and decide whether two segments must be included in the current year segment
disclosures. Their findings must be communicated in a memorandum to the CFO
that includes references to authoritative literature.
Chapter 13 - SEGMENT AND INTERIM REPORTING
13-7
C13-8
LO 13-4
30 min.
M
Income Tax Provision in Interim Periods
Students must research the authoritative accounting standards regarding interim
reporting with respect to reporting quarterly income tax provisions when the
effective tax rate is expected to change. Students must communicate their
findings in a memorandum to the controller and includes references to
authoritative literature.
C13-9
LO 13-4
30 min.
M
Questions about Interim Reporting
Students are asked to provide brief answers to eleven questions about interim
reporting presuming the company is preparing its Form 10-Q for the third quarter
of its fiscal year.
E13-1
LO 13-2
25 min.
E
Reportable Segments
This exercise requires the relatively straight-forward computation of the three
10% significance rules and the 75% comprehensive disclosure test.
E13-2
LO 13-2,
LO 13-3
30 min.
E
Multiple-Choice Questions on Segment Reporting [AICPA Adapted]
Eleven multiple-choice questions that examine both theory and the ability to
determine the operating profit or loss for various examples.
E13-3
LO 13-4
20 min.
E
Multiple-Choice Questions on Interim Reporting [AICPA Adapted]
Ten multiple-choice questions examining both theory and the determination of
the amounts of specific items that are presented in the interim report.
E13-4
LO 13-4
25 min.
E
LIFO Liquidation
Journal entries are required to account for the sale of items that result in
liquidation of part of a company's inventory base. Students must also make the
appropriate entry to record the replacement of only a portion of the items by
year-end.
E13-5
LO 13-4
30 min.
M
Inventory Write-Down and Recovery
This exercise requires the computation of each quarter's cost of goods sold as the
market value of the inventory goods changes from quarter to quarter. Students
must also reconcile the total of the quarterly cost of goods sold to the annual cost
of goods sold on a lower-of-cost-or-market basis.
E13-6
LO 13-4
20 min.
E
Multiple-Choice Questions on Income Taxes at Interim Dates [AICPA
Adapted]
Six multiple-choice questions requiring the computation of the quarterly tax
expense or benefit under several alternatives.
