Disclosure Issues Related To Segment and NCI

DisclosureIssues Related To Segment and NCI

DisclosureIssues Related To Segment and NCI

Publiccompanies are guided by a set of accounting standards that are set byestablished organizations when preparing their financial statements.These rules and standards address different aspects of financialaccounting and reporting. One of the key aspects that are emphasizedin the field of accounting is the disclosure, which involves theprovision of all the necessary information to the key stakeholders(Ernst &amp Young, 2012). The information that is disclosure is usedby the stakeholders to enhance their understanding of the enterprise,assess its prospects for the future cash flows, and make informeddecisions regarding the organization as a whole. This paper willaddress the disclosure requirements for segments and NCI, with a casestudy of Colgate-Palmolive Company.

Areview of Colgate-Palmolive Company

Colgate-PalmoliveCompany is a multinational corporation that specializes in theproduction and the sale of consumer products in about 200 countries.Colgate was founded in the year 1806 in Delaware, but it wasincorporated in 1923 (Colgate Palmolive 2015). Its wide range ofconsumer products is classified into two segments, which include thePet Nutrition and Oral, Personal, and Home Care. Colgate isconsidered as the leading producer of manual toothbrush andtoothpaste. Its range of oral hygiene products includes the ColgateSensitive Pro-relief, Colgate Total, Colgate Maximum CavityProtection, and Colgate Max Fresh (Colgate Palmolive 2015).Colgate-Palmolive has also emerged as the leading manufacturer andthe seller of self-care products, such as Protex Softsoap andPalmolive brands. However, the products sold under the Pet Nutritionsegment (including the dog and cat foods) are marketed in 80countries only.


Alldisclosure requirements are reviewed regularly by the responsibleorganizations, such as the Financial Accounting Standards Board(FASB). The new standards are documented in the form of InternationalFinancial Reporting Standards or the Accounting StandardsCodification. A report of major changes in disclosure requirementswas issued in 1997, but a few amendments have been made over theyears (FASB, 2011).

Generalrequirements on segment disclosure

UnderFASB No. 131, all public enterprises are required to disclosedescriptive as well as financial information about their operatingsegments. In terms of scope, the reporting entity is required todisclose the information that is used internally to facilitate theprocess of evaluating the performance of the segment and makingdecisions regarding the allocation of resources to the segment inquestion (FASB, 2016). FASB No. 131 defines operating segments ascomponents of a given enterprise about which a set of separatefinancial information is made available and it is evaluated regularlyby a chief operating decision maker (CODM) to decide how resourcesshould be allocated and performance assessed (FASB, 2011). The firstset of information should be provided in the footnote of thefinancial statements. Five key items are disclosed in the footnotesas per the requirements of the ASC 280 and IFRS 313. First, thereporting entity should provide general information about the basisused to identify the segment and its sources of revenue (Ernst &ampYoung, 2012). Secondly, the enterprise should disclose the loss orthe profit reported by its segment. Third, assets owned by thereportable segment (including the measure of the assets that werereviewed by CODM) should be disclosed. Fourth, the basis used tomeasure the loss or profit and assets of the reportable segmentsshould be disclosed adequately. Lastly, the enterprise should make adisclosure of the reconciliations of the revenue, loss or the profit,assets, and other important items of the reported segment.

Disclosurerequirements for assets, loss or profits of the reported segment

Beforedisclosing items that are directly related to loss or profit made bythe reported segment, the enterprise is required to disclose themeasures of loss or profit. This is followed by a disclosure of allitems that might have affected the amount of profit or loss reportedby the segments. These items include the revenue sourced fromexternal customers, interest expenses, interest revenue, depletion,depreciation, amortization expense, and equity in net income asaccounted through the equity method, income tax expense, significantnon-cash items, and extraordinary items (Ernst &amp Young, 2012).The requirement for disclosure of interest expense and interestrevenue is intended to offer information regarding financingactivities of the segment being reported.

Anenterprise should consider two items in relation to the disclosure ofassets owned by the segment. First, the enterprise should make adisclosure of the total amount that has been invested in the equitymethod investees (Ernst &amp Young, 2012). Secondly, the reportingcompany should disclose any additions made to the long-lived assetsother than the following items financial instruments, mortgage,long-term customer relationships established in relation to financialinstruments, deferred tax assets, and deferred policy acquisitioncosts.

Requirementsfor disclosure on reconciliations

Anentity that is publicly traded is expected to disclose at least fouritems in relation to reconciliations. The first item is the totalrevenue of the reportable segment that is included in theconsolidated revenue of the public entity. Secondly, the publicentity should report the total measure of the loss or profit made bythe reportable segment and included in the consolidated income beforetax, discontinued operations, and extraordinary items that arereported by the public entity (Ernst &amp Young, 2012). However, thepublic entity is allowed to reconcile the measure of loss or profitof the segment to its consolidated income in case it allocatesextraordinary items and taxes. Third, the public entity should reportthe total assets of the segment that are included in its consolidatedassets. Fourth, the entity should disclose the total of all otherimportant items of the segment that are included in the correspondingconsolidated amounts.

Interimperiod information

Thepublicly traded companies and their segments are expected to prepareinterim and the end-of the year financial statements. To this end,the public entity is required to make a disclosure of the interiminformation in relation to revenues generated from externalcustomers, revenues classified as intersegment, the measure of theloss or profit made by the segment, and total assets that have beenaffected by material changes that occurred during the financialperiod (Ernst &amp Young, 2012). In addition, the public entityshould describe the differences between the last annual reporting andthe current annual reporting on the basis of measurement or the basisof segmentation. The reconciliation of the total of the loss or theprofit made by the segment at the end of the interim period andreported to the consolidated income should be disclosed as part ofcrucial interim information.

Disclosureon restatement of the information that has been reported in the past

Therestatement of the previous information is only required when thepublic entity has undergone significant changes that affect thecomposition of the segment. In this case, the reporting entity isrequired to disclose corresponding information, unless the companycan prove that such a process is impracticable (Ernst &amp Young,2012). The entity should also state whether it has already restatedall corresponding items of the information on the segment for earlierperiods.

GeneralNCI disclosure requirements

Disclosurerequirements for NCI are outlined in FASB 160, where the items thatare supposed to be reported by a public entity are classified intofour categories. Similar to disclosure requirements on segments,major disclosure rules on NCI were developed in 2007, but they becameeffective in 2009 (Brenner &amp Watkins, 2013). The new standardschanged the way corporations accounted for and disclosed transactionsrelated to their acquisitions and NCI. First, the public entity isrequired to disclose the proportion of comprehensive income andconsolidated net income that is attributed to the NCI and the parentcompany (Brenner &amp Watkins, 2013). In the second category, theparent company is required to report the amount that is attributed tothe NCI for the discontinued operations, income generated fromcontinuing operations, items considered to be extraordinary, andother components of comprehensive income. Third, the reportingcompany should disclose a reconciliation that has been made on theannual change in the amount of NCI. These annual changes include theconsolidated net income that is attributed to NCI, the investmentmade by and distribution made to NCI, and each of the components ofthe comprehensive income. In the last requirement, the parent companyis expected to make a footnote schedule that shows the effects ofdifferent transactions that the parent company engaged with the NCIon the equity that is attributable to the NCI (Brenner &amp Watkins,2013). All the four categories of disclosure are mandatory under thecurrent set of IFRS. From 2008, the parent companies are required todisclose changes in their percentage ownership in the NCI, andcircumstances that led to a loss (Bahnson, McAllister &amp Miller,2016).

Colgate-PalmoliveCompany’s disclosures NCI and Segment

Disclosuresrelated to segments

Colgate-PalmoliveCompany made a clear disclosure of the general information regardingthe segments. For example, the type of products (including PetNutrition and Oral, Personal, and Home Care) and geographicallocations were the major basis used to identify reportable segments(Colgate Palmolive 2015). In terms of geographical coverage, Colgatedivided its segments into Latin America, North America, Europe/SouthPacific, Africa/Eurasia, and Asia. In addition, Colgate disclosed theassets of each of the geographical segments, where the Europe/SouthPacific had the highest amount ($ 3,836 million in 2014 and $ $ 3,457million in 2015) of assets (Colgate Palmolive 2015).

Theprofit earned by each segment from external customers was equal tothe operating income, which was clearly disclosed in the financialreports. For example, the Europe/South Pacific segment made a totalprofit of $ 750 million in 2015 (Colgate Palmolive 2015). Theinterest expense reported for the year 2015 was $ 26 million, whilethe amortization expense reported in the same year was $ 33 millionand depreciation expense was $ 71 million. Moreover, the necessaryreconciliations were properly disclosed in the annual report. For aninstant, a reconciliation of the increase in revenue generated fromorganic sales in different segments was disclosed as required by theIFRS. The Colgate prepared interim financial reports on a quarterlybasis, where the necessary items were disclosed in the annual report.However, there was no disclosure of intersegment transaction for theinterim periods. The company also made an appropriate disclosure ofthe changes in structure that affected the reportable segments. Thisis confirmed by the disclosure made on the changes in the capitalstructure of the operations in Venezuela. Although the segments’corresponding items were not disclosed on the consolidatedstatements, these items were discussed in the notes.

Disclosuresrelated to NCI

Boththe net income ($ 164 million) and comprehensive income ($ 941)attributable to NCI and the parent company for the year 2015 weredisclosed (Colgate Palmolive 2015). The net income generated fromcontinuing operations for the year 2015 was $ 1,384 million. However,Colgate did not have discontinued operations during the financialyear 2015. In addition, the company disclosed all reconciliationsmade on changes that occurred with respect to consolidated net incomeand investment made by non -controlling interests. For example, theunrealized gains on investment reported in 2015 were $ 5 million. Theschedules of how different transactions with the NCI affected theequity attributable to NCI were provided towards the end of theannual report.

Personalthoughts on effectiveness of Colgate-Palmolive disclosure anddisclosure rules

Arequirement for adequate disclosures in the field of financialaccounting plays a critical role in enhancing transparency andreducing chances of fraudulent activities. In the case of Colgate,which is a multinational company with numerous segments and NCIs, anadequate disclosure made it easy for the stakeholders to review thefinancial statements. This is confirmed by the ease with which onecan review the income that the parent company makes from differentsegments and the net income that can be attributed to NCI.

Colgate-PalmoliveCompany complied with the laid down IFRS in disclosing transactionsthat relate to its segments and NCI. In the case of Segment financialreporting, Colgate addressed all disclosures that are outlined inFASB 131, which include the general information, profit or loss madeby the segment, measures of profits, reconciliations, interimreporting, and restatements (Ernst &amp Young, 2012). However, therewere no disclosures made about the existence or the absence ofintersegment transactions. In addition, the corresponding items ofthe reported segments were not indicated in the consolidatedstatements.The disclosure requirements provided by FASB 160 wereobserved adequately when reporting on NCI. In overall, the level ofdisclosure rules was effective in enhancing transparency of thecompany’s financial statements.


TheColgate-Palmolive Company is a multinational corporation thatcomplies with the disclosure standards and rules for segments andNCI. The main purpose of these disclosure requirements is to enhancetransparency in accounting for the segments and NCI. Althoughsignificant changes in the disclosure rules became effective in theyear 2009, numerous amendments have been made over the years in orderto ensure that companies provide the relevant information to theirstakeholders. The disclosure requirements for segments are providedby FASB 131. Some of the key items that should be disclosed under theFASB 131 include assets, loss or profits, reconciliations, interimperiod information, and restatement of information. Disclosurerequirements for NCI are provided by the FASB 160. The items that arerecommended for disclosure under FASB 160 include the net income thatis attributable to the NCI, income generated from continuingoperations, reconciliations of changes in amounts that are reportedby NCI, and the footnote schedules.


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Brenner,C. &amp Watkins, L. (2013). Accounting for non-controllinginterests: Presenting the new standards in the classroom. Journalof Finance Accounting,1, 1-19.

ColgatePalmolive Company (2015). UnitedStates and Exchange Commission: Colgate-Palmolive Company.Washington, DC: Colgate Palmolive Company.

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FASB(2011). Statementof Financial Accounting Standards No. 131.Norwalk: FASB.

FASB(2016). Summary of statement No. 131. FASB.Retrieved June 16, 2016, fromhttp://www.fasb.org/summary/stsum131.shtml