By Joe G on Jan 22, 2008
We get asked frequently about balancing segment values (BSVs), and we have definitely seen some cases of BSVs being...well...misused.
In short, the intention of balancing segments were to identify an entity that should produce a balance sheet or statement of financial position. According to FASB,
- Financial position, as it is reflected by the records and accounts
from which the statement is prepared, is revealed in a presentation
of the assets and liabilities of the entity.
- And an entity is defined as: Any legal structure used to conduct activities
or to hold assets. Some examples of such structures are corporations,
partnerships, limited liability companies, grantor trusts, and other
While this should seem pretty straightforward, the term "legal" used in the definition of entity always seems to lead to confusion. Granted, you must produce a balance sheet for your legal entities, but many of our customers wish to produce balance sheets for sub-legal entities as well. By sub-legal entity, I mean simply a portion of the legal entity. This sub-legal entity could be a division, a department, a plant, or any other segment of the business. In order to keep your accounting pristine, this sub-legal entity should always roll-up to a single legal entity.
So determining your balancing segment values is pretty simple:
If you would like to produce a balance sheet for sub-legal entities, then you would create a balancing segment value for each of these entities, and in your hierarchy have these sub-legal entities roll-up to your legal entity balancing segment values from the previous paragraph.
I've seen some creative implementations in my time, and these implementations have definitely resulted in some creative heartaches. The best advice that I can give is to just keep it simple and try to avoid those "if's" and "but's" that will inevitably lead you to one of those creative implementations or heartaches.