Segment Reporting And Information Disclosure

1380 Words6 Pages
Introduction Segment reporting is the disaggregation of a reporting entity’s financial reports into segments. This paper investigates whether segment reporting is worthwhile and whether the requirements of the new segment-reporting standard (IFRS 8) have had an impact on the way companies disclose segment information. Significance of Segment Reporting Segment reporting is integral to the process of investment analysis and there is a common agreement among financial analysts that such information is essential to their work. Previous literature has found that segment information disclosure can increase security valuation and can make future earnings better. It is likely for a firm with diversified geographic and/or business operations,…show more content…
However, in 1968 more than 50% of the mergers comprised of firms from different lines of business. Therefore, financial reporting problems from unrelated business mergers resulted in criticism from investors and the only solution was segmental disclosure. There is no doubt that segment reporting is a contentious issue: the nature of the information disclosed seems to be commercially sensitive. The significance of segment information, however, cannot be denied. Whether or not segmental reporting is worthwhile is a question (a theoretical issue) that can be resolved logically. For an objective answer, we should consider the advantages and disadvantages of segment reporting. Consolidated financial statements offer a comprehensive view of entity’s financial performance. Such aggregation process leads to information loss. It also can’t reveal profitable or unprofitable subsidiaries and divisions which can be considered high risk owing to excessive debt levels can also escape attention. Thus, segment disclosures enable a more informed assessment of performance and associated risks of an organization i.e. it is in the best interests of the investors because they use such information to allocate their resources efficiently. Segment reporting is also a good sign of managerial stewardship. Two factors which support this are, first, bad investment decisions will be emphasized and secondly, segment’s results
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