PSAB Matters Article – Disclosing Segment Information Enhances Transparency and Accountability

Disclosing segment information in a public sector entity’s financial statements enhances the transparency of its activities and accountability for resource allocation decisions. Segment information helps users of those financial statements to better understand overall performance.

Section PS 2700, Segment Disclosures, establishes standards on how to define and disclose segments in the public sector entity’s consolidated financial statements. Government organizations that apply the standards in the CPA Canada Public Sector Accounting Handbook are encouraged to provide segment disclosures if their operations include a wide range of activities.

What Is a Segment?

A segment is a distinguishable activity or group of activities of a public sector entity for which it is appropriate to separately report financial information for accountability and transparency purposes.

How to Identify Segments

Determining the activities that should be grouped as segments requires the application of professional judgment. In identifying segments, preparers of financial statements will consider the:

  • objectives of segment disclosures;
  • key activities and accountabilities;
  • qualitative characteristics of financial reporting;
  • homogeneous nature of the activities, service delivery, or recipients of the services;
  • extent the activities relate to the achievement of common outcomes or services;
  • availability of discrete financial information; and
  • nature of the relationship between a government and its organizations.

Segment disclosures may be provided on more than one basis of segmentation, which includes:

  • major functional classifications of activities undertaken;
  • service lines distinguished by major outputs or particular operation objectives; and
  • the accountability framework that reflects the control relationships between a government and its organizations, such as SUCH (schools, universities, colleges and hospitals) sector organizations.

How to Attribute and Allocate Items to Segments

For each reportable segment, some items are directly attributable to a segment while others will be allocated on a reasonable basis. Items not attributable or allocable to individual segments on a reasonable basis would be reported as unallocated amounts in reconciling the segment disclosures to the public sector entity’s consolidated financial statements.  

This attribution and allocation principle also applies to the net income of government business enterprises accounted for on a modified equity basis, and the entity’s share of revenue and expenses of government partnerships accounted for by proportionate consolidation. Transactions and balances between controlled entities that are normally eliminated upon consolidation are not eliminated in segment disclosures, unless they are between entities within the same segment.

What Are the Segment Disclosure Requirements?

Segment information should follow the same accounting policies adopted for the preparation and presentation of the public sector entity’s consolidated financial statements.

If there is a change in segments, prior period segment information presented for comparative purposes should be restated to reflect the newly reported segment, unless the necessary financial information is not reasonably determinable.

The following information about each segment should be disclosed separately:

  • the basis for identifying segments, the nature of the segments and the activities they encompass, and the method of significant allocations to segments;
  • segment expense by major object or category;
  • segment revenue by source and type; and
  • the aggregate of the income of government business enterprises and government business partnerships accounted for under the modified equity method for each segment, if applicable.

Reconciliation between the information disclosed for segments and the consolidated information in the financial statements should also be provided.

Disclosure of other segment information that would be useful to users of the financial statements is encouraged but not required. For example, disclosing the carrying amount of assets, liabilities, tangible capital assets and other significant financial statement items by segment.

Inter-segment transfers, such as revenue from transactions with other segments, should be measured on the transfer price used by the government. The basis of pricing inter-segment transfers should be disclosed. A change in the method used to price inter-segment transfers should also be disclosed. However, no restatement of prior period segment information is required, as this is not a change in accounting policy.

Changes in accounting policies that have a material effect on segment information, but not the aggregate financial information reported at the consolidated reporting entity level, should be disclosed. Prior period segment information presented for comparative purposes should be restated unless they are not reasonably determinable. Disclosure about such changes in accounting policies should include:

  • a description of the nature of the change;
  • the reasons for the change;
  • the fact that comparative information has been restated or that the necessary financial data is not reasonably determinable; and
  • the financial effect of the change, if reasonably determinable.


Lydia So, CPA, CA
Principal, Public Sector Accounting Board
Phone: +1 (416) 204-3281