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This letter is in reference to the article, "Coping with the New Segment Standard," that appeared in the April 1998 issue of The CPA Journal. That article addressed certain requirements of FASB Statement No. 131, Disclosures About Segments of an Enterprise and Related Information. Specifically, the article refers to the criteria that Statement 131 provides in order to determine which segments of an enterprise are reportable. The article states, in part:

The above criteria are virtually identical to the criteria specified in SFAS No. 14. The one substantive difference lies in the revenue criteria. Under SFAS No. 14, for a segment to meet the revenue criteria, that segment's revenue (including both sales to unaffiliated customers and intersegment sales or transfers) has to be 10% or more of the combined revenues of all segments. SFAS No. 131 states that the same segment's revenue must be 10% or more of the combined revenue from all the reported segments for the revenue criteria to be met. To calculate the combined revenue from all the reported segments, the reportable segments must be known. But to determine what segments are reportable, one must know the combined revenue from all the reported segments.

Much of the remainder of the article illustrates how to apply this "circular" requirement.

The purpose of this letter is to advise you that the criteria provided in paragraph 18 of Statement 131 were not intended to require such a complicated evaluation of segment revenue. As stated in paragraph 76 of Statement 131:

Similar to the requirements in Statement 14, the board decided to require that any operating segment that constitutes 10 percent or more of reported revenues, assets, or profit or loss be reported separately and that reportable segments account for at least 75 percent of an enterprise's external revenues. The board decided to retain that guidance for the quantitative thresholds because it can be objectively applied and because preparers and users of financial statements already understand it.

We understand that the words of paragraph 18 may, however, be misinterpreted. Accordingly, at the May 21, 1998 meeting of the Emerging Issues Task Force, the FASB staff plans to make an announcement regarding application of Statement 131. That announcement will state, among other matters, that, "the 10 percent threshold criteria of [paragraph] 18(a) ... for revenues ... should be applied to a combined measure of all segment revenues.... Such combined [measure] should approximate consolidated revenues." *

Noreen A. McPartland
Practice Fellow, Financial Accounts Standards Board

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