Operating segment definition
/What is Segment Reporting?
If a company is publicly-held, it needs to report segment information, which is part of the disclosures attached to the financial statements. This information is needed to give the readers of the statements more insights into the operations and prospects of a business, as well as to allow them to make more informed judgments about a public entity as a whole
What is an Operating Segment?
A key concept in segment reporting is the operating segment. It is a component of a public entity, and possesses the following characteristics:
Business activities. It has business activities that can generate revenues and cause expenses to be incurred. This can include revenues and expenses generated by transactions with other operating segments of the same public entity. It can also include activities that do not yet include revenues, such as a start-up business.
Results reviewed. The chief operating decision maker of the public entity regularly reviews its operating results, with the intent of assessing its performance and making decisions about allocating resources to it.
Financial results. Financial results specific to it are available.
Some parts of a business are not considered to be operating segments under the following circumstances:
Corporate overhead. The corporate group does not usually earn outside revenues, and so is not considered a segment.
Post-retirement benefit plans. A benefit plan can earn income from investments, but it has no operating activities, and so is not considered a segment.
One-time events. If an otherwise-insignificant segment has a one-time event that boosts it into the ranks of reportable segments, do not report it, since there is no long-term expectation for it to remain a reportable segment.
Example of Operating Segments
As an example of operating segments, Microsoft Corporation reports that it operates its business in five segments, which are as follows:
Windows and Windows Live Divisions
Server and Tools Division
Online Services Division
Microsoft Business Division
Entertainment and Devices Division