What Is AS 17?
Accounting Standard 17 (AS 17), titled "Segment Reporting," was issued by the ICAI and establishes 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. Segment information helps users of financial statements to better understand the enterprise's past performance, assess risks and returns, and make more informed judgements about the enterprise as a whole.
Applicability
AS 17 is mandatory for:
- Enterprises whose equity or debt securities are listed on a recognised stock exchange
- Enterprises that are in the process of listing
- All other commercial, industrial and business enterprises whose turnover exceeds Rs 50 crore in the immediately preceding accounting year
Key Definitions
Business Segment
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 to consider include the nature of products, production processes, type of customers, distribution methods, and regulatory environment.
Geographical Segment
A geographical segment is a distinguishable component engaged in providing products or services within a particular economic environment that is subject to risks and returns different from those operating in other economic environments. Factors include similarity of economic and political conditions, relationships between operations in different areas, proximity of operations, special risks, exchange control regulations, and underlying currency risks.
Primary and Secondary Reporting Formats
The enterprise must determine which is the primary and which is the secondary reporting format based on the predominant source of risks and returns:
| Parameter | Primary Segment | Secondary Segment |
|---|---|---|
| Basis | Predominant source of risks and returns | Other basis (business or geographical) |
| Disclosure Level | Full disclosure — revenue, result, assets, liabilities, capital expenditure, depreciation | Limited disclosure — revenue, assets, capital expenditure |
If risks and returns are strongly affected by both products and geography, business segments should be the primary format and geographical segments the secondary.
Identifying Reportable Segments
A segment is a reportable segment if it meets any one of the following 10% thresholds:
- Revenue test: Segment revenue (both external and inter-segment) is 10% or more of the total revenue of all segments
- Result test: Segment result (profit or loss) is 10% or more of the greater of (a) total profits of all profitable segments, or (b) total losses of all loss-making segments
- Asset test: Segment assets are 10% or more of the total assets of all segments
75% Rule
If the total external revenue attributable to reportable segments constitutes less than 75% of total enterprise revenue, additional segments should be identified as reportable segments until the 75% threshold is reached.
Segment Revenue, Expense, Result, Assets and Liabilities
Segment Revenue
Includes revenue directly attributable to the segment plus a reasonable allocation of revenue attributable to the segment. It includes both external revenue and inter-segment revenue (priced on an arm's length basis).
Segment Expense
Includes expense directly attributable to the segment plus a reasonable allocation of expenses. Excludes: interest expense (unless a finance segment), income tax, extraordinary items, and head office expenses not relating to operating activities of segments.
Segment Result
Segment revenue minus segment expense, before adjustments for minority interest. It represents the operating profit or loss of the segment.
Disclosure Requirements — Primary Segment
- Segment revenue (external and inter-segment separately)
- Segment result
- Segment assets
- Segment liabilities
- Capital expenditure on segment assets
- Total depreciation and amortisation
- Significant non-cash expenses other than depreciation
- Reconciliation of segment revenue, result, assets and liabilities with the enterprise's totals
Disclosure Requirements — Secondary Segment
- Segment revenue from external customers
- Segment assets
- Capital expenditure on segment assets
Conclusion
AS 17 provides critical transparency for diversified enterprises by requiring separate reporting of financial information by business and geographical segments. This information helps investors, analysts, and creditors assess the risk-return profile of different activities and markets, leading to better-informed decision-making.
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