BSVs Simplified

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
    trusts.

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:
Determine your legal entities requiring a statement of financial position for reporting to external authorities.  Each of these legal entities will be a balancing segment value.  If reporting at this legal entity level is sufficient for you, then you're done.  

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.

Comments:

Hi, Thanks for the article. I've always thought that Oracle should do away with the 'Balancing Segment Value' nomenclature. What this really represents is an Accounting Entity. Entity: An entity is something that has a distinct, separate existence. Note that this definition is more general than the one for Legal Entity. Therefore, an accounting entity is something whose accounting (financial results) is separate and distinct from any other entity. I have also seen, as the definition of Accounting Entity: Clearly defined economic unit which (1) engages in identifiable economic activities, (2) controls economic resources (for which accounting records are maintained and periodic financial statements are prepared) and (3) is distinct from the personal dealings of its owners or employees. If a legal entity is not divided, then the accounting entity (BSV) is the same as the legal entity. But if the legal entity is divided into entities with their own financial results, such as sometimes for corporate divisions or funds then they _may_ get their own balancing segment value to represent each accounting entity. I say _may_ because I have not fully analyzed the behavior surrounding the use of the 'Secondary Balancing Segment'.

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