AS 17, Segment Reporting, exists so that readers can see how an enterprise's different businesses and locations affect its risks, returns and performance. The hard part is not splitting revenue by division. It is identifying segments consistently, choosing whether business or geography is the primary format, applying the three reportable-segment thresholds and then checking that the reported segments capture enough of the enterprise's external revenue.
The text used here is AS 17 as published in ICAI's compendium of Accounting Standards. The compendium records that AS 17 is not mandatory for Small and Medium Sized Companies and for Micro, Small and Medium sized non-company enterprises at Levels II, III and IV, although they are encouraged to comply. Every other entity following Accounting Standards (rather than Ind AS) needs the workflow below.
Step 1: define the segments
Business segment
Under paragraph 5.1, 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 different from those of other business segments. The factors to consider are:
- the nature of the products or services;
- the nature of the production processes;
- the type or class of customers;
- the methods used to distribute the products or provide the services; and
- where applicable, the nature of the regulatory environment.
Geographical segment
Under paragraph 5.2, a geographical segment is a distinguishable component engaged in providing products or services within a particular economic environment and subject to risks and returns different from components operating in other economic environments. The factors are similarity of economic and political conditions, relationships between operations in different areas, proximity of operations, special risks of operating in a particular area, exchange control regulations and the underlying currency risks.
Paragraph 9 allows geographical segments to be based either on the location of the enterprise's production or service facilities and other assets, or on the location of its customers. The choice should follow where the economic risk actually sits, not the registered office or the invoice address.
Step 2: choose the primary and secondary formats
Paragraph 19 makes the dominant source and nature of risks and returns decide the primary format. If differences in products and services drive risks and returns, business segments are primary and geographical information is secondary. If differences in location drive them, the order reverses.
Paragraph 20 gives the practical anchor: the internal organisation and management structure, and the system of internal financial reporting to the board of directors and the chief executive officer, should normally be the basis for identifying the predominant source and nature of risks and differing rates of return. A file that picks segments from legal entities or cost centres, without reference to how the board actually reviews the business, is hard to defend.
Step 3: apply the three 10% tests
Paragraph 27 makes a segment reportable if it meets any one of these tests:
| Test | Wording of paragraph 27 |
|---|---|
| (a) Revenue | Revenue from sales to external customers and from transactions with other segments is 10 per cent or more of the total revenue, external and internal, of all segments |
| (b) Result | Segment result, whether profit or loss, is 10 per cent or more of the combined result of all segments in profit, or the combined result of all segments in loss, whichever is greater in absolute amount |
| (c) Assets | Segment assets are 10 per cent or more of the total assets of all segments |
Document each test separately, because a segment that fails one test can pass another. Paragraph 28 also lets management designate a segment below all three thresholds as reportable at its discretion. Paragraph 30 adds that the 10 per cent thresholds are not a guide to materiality for any aspect of financial reporting other than identifying reportable segments.
Step 4: check the 75% coverage rule
Paragraph 29 then applies a separate check: if total external revenue attributable to reportable segments is less than 75 per cent of total enterprise revenue, additional segments should be identified as reportable, even if they do not meet the 10 per cent thresholds, until the 75 per cent level is reached.
Worked example: five segments
An enterprise has five business segments. Segment A sells ₹20 crore of components to other segments, so its total revenue is higher than its external revenue. All amounts are in ₹ crore.
| Segment | Total revenue | External revenue | Result | Assets |
|---|---|---|---|---|
| A | 50 | 30 | 12.0 profit | 80 |
| B | 20 | 20 | 6.0 loss | 30 |
| C | 9 | 9 | 3.0 profit | 12 |
| D | 8 | 8 | 1.5 loss | 9 |
| E | 7 | 7 | 0.8 profit | 6 |
| Total | 94 | 74 | Profits 15.8; losses 7.5 | 137 |
Revenue test. The base is total revenue of ₹94 crore, including inter-segment sales. A is 53.19% and B is 21.28%, so both pass. C (9.57%), D (8.51%) and E (7.45%) fail.
Result test. Combined profits of ₹15.8 crore exceed combined losses of ₹7.5 crore, so the base is ₹15.8 crore and the threshold is ₹1.58 crore. C's profit of ₹3.0 crore is 18.99% of the base, so C is reportable on this test even though it failed on revenue. D's loss of ₹1.5 crore is 9.49%, narrowly failing, and E is 5.06%.
Asset test. Total segment assets are ₹137 crore. A (58.39%) and B (21.90%) pass. C is 8.76%, D 6.57% and E 4.38%, so none of them passes on assets.
75% check. Reportable segments are A, B and C. Their external revenue is ₹30 + ₹20 + ₹9 = ₹59 crore, which is 79.73% of total external revenue of ₹74 crore. The 75% rule is met, so D and E need not be reported as separate segments. Had the team stopped at the revenue test, A and B alone would have covered only ₹50 crore, or 67.57%, and the file would have failed both the result test for C and the 75% rule.
Step 5: continuity and comparatives
Under paragraph 31, a segment that was reportable in the immediately preceding period because it met a 10 per cent threshold continues to be reportable in the current period even if it no longer meets the thresholds. In the example, if D had been reportable last year, it stays reportable this year despite its 9.49% result.
Paragraph 32 works in the other direction: when a segment becomes reportable for the first time, the preceding-period segment data presented for comparison should be restated to show the new segment separately, unless that is impracticable. Plan for this early, because comparative data may have to be rebuilt from old management accounts.
Step 6: primary format disclosures and reconciliation
Paragraph 40 requires the following for each reportable segment in the primary format:
- segment revenue, split between sales to external customers and inter-segment revenue;
- segment result;
- total carrying amount of segment assets;
- total amount of segment liabilities;
- total cost incurred during the period to acquire segment assets expected to be used for more than one period;
- depreciation and amortisation included in segment result; and
- significant non-cash expenses, other than depreciation and amortisation, included in segment result.
Paragraph 46 requires a reconciliation of segment revenue to enterprise revenue, segment result to enterprise net profit or loss, segment assets to enterprise total assets and segment liabilities to enterprise liabilities. Amounts that cannot be allocated on a reasonable basis belong in the reconciling "unallocated" column rather than being forced into a segment.
Two further disclosures are easy to miss. Paragraph 53 requires inter-segment transfers to be measured on the basis the enterprise actually used to price them, with that basis and any change in it disclosed. Paragraph 54 requires disclosure of changes in segment accounting policies that have a material effect on segment information.
Step 7: secondary format information
The secondary format is narrower, and it has its own 10 per cent triggers:
| Primary format | Secondary disclosure | Trigger |
|---|---|---|
| Business segments (paragraph 48) | Geographical information on external revenue by customer location, segment assets and capital expenditure by asset location | External revenue of the area is 10 per cent or more of enterprise revenue, or its segment assets are 10 per cent or more of total assets |
| Geographical segments (paragraph 49) | Business segment information on external revenue, segment assets and capital expenditure | External revenue of the business segment is 10 per cent or more of enterprise revenue, or its segment assets are 10 per cent or more of total assets |
Year-end checklist
- Confirm that AS 17 applies to the entity for the period.
- Obtain the internal reporting pack reviewed by the board and the chief executive.
- Document the business and geographical segments and the factors that support each boundary.
- Conclude on the primary format from the dominant source of risks and returns.
- Run the revenue, result and asset tests for every segment, with the bases shown.
- Record any segment designated as reportable at management's discretion.
- Apply the 75% external revenue check.
- Review last year's reportable segments for continuity and plan any comparative restatement.
- Prepare primary and secondary disclosures, the inter-segment pricing basis and the reconciliation to enterprise totals.
Common mistakes
- Using external revenue only for the revenue test and leaving out inter-segment revenue.
- Applying 10% to net enterprise profit instead of the greater of combined profits and combined losses.
- Stopping after the revenue test and missing a segment that passes on result or assets.
- Skipping the 75% coverage rule.
- Dropping a segment that was reportable last year because it slipped below a threshold.
- Choosing segments from legal entities rather than from the internal reporting structure.
Updated on 27 September 2026: retitled; added AS 17 paragraph references and exact test wording, the applicability note, voluntary designation, inter-segment pricing and secondary-format thresholds; replaced the earlier worked example, whose external revenue figures exceeded total revenue for two segments, with a consistent five-segment calculation.
