## SA 501: Presentation & Disclosure of Segment Reporting

### Context

Large diversified companies (e.g., ITC Ltd. with FMCG, Hotels, Agri-business, and Paper segments) are required to present segment-wise financial information in their financial statements.

Management's responsibility: Ensure segment reporting is presented and disclosed in accordance with the applicable Financial Reporting Framework (FRF) — e.g., Ind AS 108 (Operating Segments).

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### Auditor's Objective

Obtain SAAE that the presentation and disclosure of segment reporting is in accordance with the applicable FRF.

### Audit Procedures

1. Obtain understanding of management's procedures relating to segment reporting:

How does management identify segments?
What methods are used to allocate revenues, expenses, assets, and liabilities to segments?
Are those methods consistent with the applicable FRF?

2. Perform Analytical Procedures on segment data:

Compare segment performance across periods
Compare segment margins with industry benchmarks
Investigate unusual fluctuations in segment results

3. Review Main Notes to financial statements for adequacy and completeness of segment disclosures.

Worked example

### Example 1

Understanding Segment Identification: ITC Ltd. has four reportable segments: FMCG, Hotels, Paperboards, and Agri-business. The auditor obtains and evaluates the criteria management uses to identify these segments (chief operating decision maker's approach) and checks whether this is consistent with Ind AS 108.

### Example 2

Analytical Procedures on Segment Data: The auditor notices that the FMCG segment's profit margin dropped from 18% to 9% year-on-year while revenue grew. This prompts further inquiry — management explains a one-time promotional spend. The auditor verifies this through expenditure records and ensures adequate disclosure in notes.

⚠️ Common exam mistakes

Limiting procedures to only checking arithmetical accuracy of segment totals — failing to assess whether the segment identification itself is consistent with the FRF.
Not performing analytical procedures on segment data — unusual fluctuations in segment results are a key indicator of misstatement.
Overlooking the adequacy of disclosures in notes to accounts — segment reporting is as much a disclosure compliance issue as a measurement one.

Bare-Act text Paragraphs 13–14 (Segment Information) · SA 501 — Audit Evidence: Specific Considerations for Selected Items · click to expand

The auditor shall obtain sufficient appropriate audit evidence regarding the presentation and disclosure of segment information in accordance with the applicable financial reporting framework by: (a) obtaining an understanding of the methods used by management in determining segment information; and (b) where appropriate, testing the application of such methods and performing analytical procedures.

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SA 501 — Presentation and Disclosure of Segment Reporting

Worked example

⚠️ Common exam mistakes