An entity’s first step is to identify its operating segments. It performs such identification by using the management approach. As indicated in ASC 280-10-50-1, “[a]n operating segment is a component of a public entity that has all of the following characteristics:

a. It engages in business activities from which it may recognize revenues and incur expenses . . . .

b. Its operating results are regularly reviewed by the public entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance.

c. Its discrete financial information is available.”

An entity may need to use judgment when evaluating whether a component has all the characteristics of an operating segment.

Once an entity has identified its operating segments, it determines which of them to report.

Two or more operating segments may be aggregated into a single operating segment if the following three criteria are met:

• Aggregation is consistent with the objectives and basic principles of ASC 280.

• The segments have similar economic characteristics.

• The segments are similar with respect to all of the qualitative characteristics.

An entity is not required to aggregate operating segments. Because ASC 280 does not define the term “similar” or provide extensive guidance on the aggregation criteria, the determination that two or more operating segments are similar depends on facts and circumstances and is subject to judgment.

Once an entity determines which of its operating segments may be aggregated, it must apply the quantitative threshold guidance (i.e., the 10 percent tests that are based on revenue, profit or loss, and assets) in ASC 280 to determine which segments to report separately. An operating segment needs to meet only one of the 10 percent tests in ASC 280 to be a reportable segment, although it may meet more than one.

After identifying which operating segments meet the quantitative threshold requirements or are otherwise qualitatively material and must be reported separately, the entity can apply the guidance in ASC 280-10-50-13, which permits the combination of any remaining segments to produce a reportable segment if all of the following criteria are met:

• Aggregation is consistent with the objectives and basic principles of ASC 280.

• The segments have similar economic characteristics.

• The segments share a majority of qualitative aggregation criteria outlined in ASC 280.

An entity is not required to aggregate operating segments and is encouraged to consider whether to separately report information on them irrespective of whether the segments meet the quantitative requirements for separate disclosure. The total external revenue disclosed by the reportable segments should constitute greater than 75 percent of total consolidated revenue.

Because aggregation is a high hurdle, the SEC staff may ask a registrant to provide an analysis on how it determined that its aggregation of operating segments complies with both the quantitative and qualitative requirements of ASC 280.

After an entity has identified its reportable segments, it must provide the following types of quantitative and qualitative disclosures for each of them, generally for each period presented:

• General information.

• Information about segment profit or loss and assets.

• Reconciliations to consolidated amounts.

Entities are required to disclose information about products and services, geographical operations, and major customers on an entity-wide basis regardless of how the entity is organized.

These disclosures are intended to ensure some level of comparability across entities, irrespective of how the entities are managed or resources are allocated. Accordingly, an entity should carefully consider the objectives and principles of ASC 280 when evaluating the disclosure requirements.