A company that generates reports by both geographic region and product line must consider additional criteria in identifying operating segments when there are multiple sets of reports. Which of the following statement(s) is correct?
(I)) An operating segment has a segment manager who is directly accountable to the chief operating decision maker for its financial performance.
(II)) If more than one set of organizational units exists, each organizational unit is considered an operating segment even if there is only one set for which segment managers are held responsible.
(III.) If segment managers exist for two or more overlapping sets of organizational units, the nature of the business activities must be considered.
A) I, II, and III.
B) I and III only.
C) I and II only.
D) II and III only.
E) None of these.

Question

Quizplus · Accepted Answer

Statement I is correct as an operating segment must have a segment manager who is directly responsible to the chief operating decision maker for the financial performance of that segment.

Statement II is not completely correct. Even if there are multiple sets of organizational units, not all of them will necessarily be considered operating segments. The criteria for identifying operating segments is based on how the chief operating decision maker (CODM) evaluates performance and allocates resources. If there are multiple sets of organizational units, they will only be considered operating segments if the CODM evaluates their performance separately and makes resource allocation decisions based on that evaluation.

Statement III is correct as when there are multiple sets of organizational units for which there are segment managers, the nature of the business activities must be considered to determine if they are separate operating segments. It is possible that some organizational units may be combined into one operating segment based on their similarity of business activities, while others may be separate operating segments if they have distinct business activities.

A Company That Generates Reports by Both Geographic Region and Product