Wiley GAAP 2008

Concepts, Rules, and Examples

Applicability of FAS 131

FAS 131 applies to public companies. The statement does not mandatorily apply to not‐for‐profit organizations or to nonpublic companies—which are, nevertheless, encouraged to voluntarily provide the segment disclosures prescribed by FAS 131.

Operating Segments

In FAS 131, an operating segment is defined as a component of a reporting entity

1. That engages in business activities that may generate revenues and incur expenses from transactions with external parties and/or with other components of the same reporting entity (intersegment transactions),

2. About which discrete financial information is available, and

3. Whose operating results are reviewed regularly by the reporting entity's chief operating decision maker (CODM) in order to assess the segment's performance and make resource allocation decisions.

Operating segments frequently have a segment manager function that communicates on an ongoing basis with the reporting entity's CODM. The segment manager is not necessarily a single individual but rather the segment management responsibility can vest functionally in a committee or group of designated individuals. Additionally, an operating segment is not necessarily revenue generating from its inception, as it may be in a start‐up phase.

Not all activities that occur within the reporting entity are allocable to its operating segments. Activities that are nonrevenue‐producing or that are incidental to the reporting entity are not considered ...