Clare B. Roberts1
19.1 What is segment reporting?
19.2 The need for segment information
19.3 Disclosure regulations
19.3.2 Requirements in the United States
19.3.3 IAS 14
19.3.4 IFRS 8
19.4 Evidence on the benefits of segment reporting
19.4.2 Studies of user decision making
19.4.3 Studies using researchers’ forecasts
19.4.4 Stock market reactions to segment disclosures
After reading this chapter, you should be able to:
explain the nature and purposes of segment reporting;
outline the development of segment reporting from the 1960s onwards;
describe the segment disclosure requirements of the IASB and the United States;
outline the major practical problems met when trying to identify segments or trying to write rules on this subject; and
explain the contributions of research to the understanding of the benefits and costs of segment reporting.
19.1 What is segment reporting?
It has long been recognized that users of financial statements need consolidated information. However, consolidated statements do not provide all the information needed, and the annual report of any large company will typically include much
This is a revised version of the chapter in previous editions by Clare Roberts and Sidney Gray.
Major issues in the financial reporting of MNEs
Table 19.1 Caterpillar’s geographical disclosures
External Sales & Revenues
Net property, plant and
Information about geographic areas:
Inside United States..............................
Outside United States...........................
Source: Adapted from Caterpillar Inc. (2007) Caterpillar Inc. General and Financial Information 2006, Caterpillar, Inc., Peoria, Illinois, p. A-36.
more information than this. For example, it will include non-financial or narrative disclosures describing the activities of each of its divisions or each major part of the company. This information may be broken down by different types of industry, different parts of the world, a combination of industry and geographical areas, or any other basis that the company thinks helpful for the reader. Also included, usually in the notes to the financial statements, will be disaggregated or segmented financial information, commonly referred to as segment reporting. Segment reporting involves breaking down the enterprise into its constituent parts or segments and reporting financial information for each of these. A company can segment its operations in a number of ways, but the most common are segmentation by industry or type of business (often called line of business, or LoB), by geographical area (either in terms of location of operations or location of customers) or by a combination of both of these. An example of a very simple set of geographical segment disclosures is given in Table 19.1, which reproduces some of the disclosures made by the US company Caterpillar (this shows the US requirements for secondary segments, as discussed below). As can be seen, Caterpillar disaggregates its sales or turnover and its net property, plant and equipment into two segments – Inside United States and Outside United States. Rather more information is provided by the Japanese company Honda Motor, as illustrated in Table 19.2. This company discloses external sales, internal sales, operating income and segment assets for its five geographic segments. If we instead look at the UK company,...
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