Materiality and Segment Reporting

Paula Pate

Advanced Accounting Section 6980

Professor Beatrice Rolland

April 25, 2010

Materiality and Segment Reporting

There are many different factors that a company should consider in determining the appropriate materiality levels for foreign segment reporting within today’s financial statements, and the Financial Accounting Standards Board (FASB) doesn’t do much in the way of identifying those factors. According to FASB Statement number 131, a company should report geographic information unless it is impractical to do so. That information should consist of the following:

A. Revenues from external customers (1) attributed to the enterprise's country of domicile and (2) attributed to all foreign countries in total from which the enterprise derives revenues. If revenues from external customers attributed to an individual foreign country are material, those revenues shall be disclosed separately. An enterprise shall disclose the basis for attributing revenues from external customers to individual countries.

B. Long-lived assets other than financial instruments, long-term customer relationships of a financial institution, mortgage and other servicing rights, deferred policy acquisition costs, and deferred tax assets (1) located in the enterprise's country of domicile and (2) located in all foreign countries in total in which the enterprise holds assets. If assets in an individual foreign country are material, those assets shall be disclosed separately.

Materiality is defined as “Information which if omitted, misstated or not disclosed separately has the potential to adversely affect decisions about the allocation of scarce resources made by users of the financial report or the discharge of accountability by the management including the governing body of the entity”. But what is material in viewing financial statements? How about 10 percent? What about 5 percent? What about qualitative measures that could have a significant...