SFFAS 4
Page 53 - SFFAS 4 FASAB Handbook, Version 23 (9/24)
Such reports, although useful for many purposes, are not sufficient for cost management. A
fundamental undertaking of managerial cost accounting is to match costs with activities and
outputs. The purpose of segmentation is to segregate entity-wide data by major lines of
activities and their outputs. Information related to each segment should tell managers and
other users of financial reports about the segment’s specific outputs, the activities
performed, and resources consumed to produce the outputs.
192. Furthermore, segment-based reporting need not be in conflict with entity-wide financial
reporting. They can use a common source of data, such as accounting data collected by the
standard general ledger or the budget execution reports. To perform segment-based
accounting and reporting, the general accounting or budget execution data can be traced
and assigned to segments. The Statement of Federal Financial Accounting Concepts No. 2,
Entity and Display, discusses a reporting approach similar to the segment-based accounting
and reporting:
“With some organizations, and even suborganizations, the activities of one or more programs or other
components are as important to the readers of financial statements as are activities of the entity as a whole. This
would be particularly true for a department composed of many bureaus, administrations, agencies, services, etc.,
and particularly if their programs are dissimilar. In those instances, consideration should be given to the
preferability of reporting the assets, liabilities, revenues, expenses, etc., of both the significant components
individually and of the entity in its entirety.”
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193. Another argument against requiring responsibility segments was that the requirement is
overly prescriptive and would constrain agency management from selecting among various
cost collection methods. The Board believes the standard gives management adequate
flexibility in structuring cost accounting. As the standard states, it is for the management of
each entity to decide how segments should be defined, and how similar products and
services can be grouped into one segment.
194. Furthermore, segments are the largest components of an entity. Management has the
flexibility to use any cost collection method within each segment. Within a segment,
management may define sub-units, functions, projects, business processes, activities, or a
combination of them as cost centers to accumulate costs. The costs accumulated at lower
levels can then be aggregated to the segment level.
195. In fact, a segment may contain multiple levels of responsibility or cost centers. For example,
if veterans health care is defined as one of the DVA’s responsibility segments, this segment
may define its hospitals, clinics, and nursing homes as responsibility centers. Each hospital,
clinic, and nursing home may further define their functional units, activities, or business
processes as cost centers.
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FASAB Statement of Recommended Accounting Concepts 2, Entity and Display, par. 75.