It is impossible to imagine a highly developed economy without the financial information that it now generates and—for the most part- consumes; yet it is also impossible to place value on that information.
In developing economies, chartered by inadequate resources, capital is the scarcest and most important productive factor. The problem of allocating common items common assets and liabilities is greater for some items than for others.
Disclosures are not required for 90 percent enterprises e.
However, there are some difficulties of which company managements and investment community are aware and which must be resolved if segment information is to be disclosed in company annual reports.
If market values are difficult to determine, full cost of the product or a negotiated price is considered an acceptable alternative. Information may be unreliable because it has one or both kinds of bias.
Operating income is 10 percent or more of the combined operating profit. In other words, there may be bias, not necessarily intended on the part of the measurer.
Therefore investors require information for the company as a whole for making proper decisions. Also, the disclosure of segment information may influence greatly management performance and encourages them to work in the interest of society and investors.
Presenting the results of segment operations to external users could lead to competitive damage. Therefore, better predictions of both risk and future performance may be made from disaggregated data.
Profits are the source of funds for paying interest and principal of loans. Each line of business is affected not only by general economic conditions but by special industry factors such as volume, price and raw material costs trends.
It has been stated that failure to disclose the effects of inflation, among other things, may be contributing to a misallocation of resources toward industries or groups of firms showing illusory profits.
Operating data by segments are developed for internal management users and often arbitrary judgments are made by management for developing such segment data.
This is really equivalent to saying that all materials or products transferred between divisions shall be transferred at cost, including a proportionate share of overhead.
The chief operating decision maker periodically reviews an operating segment to analyze performance and to ascertain what and how many resources to allocate to the segment.
It is widely recognised by authors in accounting and finance, accountants and accounting bodies that segment information has great usefulness in investment and credit decisions. If competitors seem to possess all the information, the owners and investors would be the only parties uninformed about data regarding the various segments in which the company is engaged.
Equilibrium in Share Prices: Besides, more than one type of diversification may be found in an enterprise simultaneously. Accounting principles employed in preparing financial statements should be used for segment information, except that inter-company transactions eliminated in consolidation are included in segmental reporting.
To the extent that disclosure does alter investor perceptions of relative rewards and risks, investors will shift toward more desirable investment opportunities. The main aim is to promote a more informed evaluation of the performance and prospects of each firm, including the prediction of profits and cash flows, so that comparisons can be made at the firm rather than at the segmental level.
Also, it is not reliability in the absolute sense that is important. Subsequently, Mautzs found that the above definition of a diversified company required modification in two respects, if it is to be adopted for financial reporting problems of diversified companies.
Disclosure may alter investors beliefs about the relative rewards and risks associated with particular securities. Benefits of Segment Reporting: Alternatively, he can segment all items using indirect bases of allocation that are frequently arbitrary.
A fundamental problem concerns the evaluation of costs and benefits especially where social objectives inevitably intrude. Allocation method for costs. Nevertheless, the usefulness of information is enhanced if it is verifiable, that is, if the attribute or attributes selected for measurement and the measurement methods used provide results that can be corroborated by independent measurers.
Unusual items affecting segmental profit. Since capital owners and investors, like the business enterprises, also attempt to maximise their own economic returns, they require information in order to make sound economic decisions. In certain quarters, there is a feeling that the problem of competitive damage can be exaggerated.
The factors to be taken into account when determining industry segments are: The objective of presenting information by segments is to provide users of financial statement with information on the relative size, profit contribution, and growth trend of the different industries and different geographical areas in which a diversified enterprise operates to enable them to make more informed judgments about the enterprise as a whole.
To obtain their capital at a lower cost, the business enterprises and companies in particular, go to the capital market.Segmental report FOR THE YEAR ENDED 30 JUNE Management has determined the operating segments based on the way the business is managed.
The reports used by the chief operating decision-maker, the members of the executive committee, to make strategic decisions reflect this.
After discussing “interim reporting” in my previous posts, you may want to know about “segmental reporting” as well. So let’s discuss about this a bit.
Through this post, I am trying to answer some basic questions may arise around segental reporting. The financial reporting for business segments is useful in appraising segmental performance.
Segmental Inspection for Improved Condition Reporting in BMS GEORGE HEARN University of Colorado at Boulder The completed segmental report shows the locations of each condition rating.
Segmental inspection provides new data on location of deterioration that is useful to selecting repair programs, estimating costs, and staging. September IFRS technical publications Adopting IFRS – A step-by-step illustration of the transition to IFRS from sales to external parties, so entities may now be required to report the different stages of vertically integrated operations as separate segments.
Segment reporting is the reporting of the operating segments of a company in the disclosures accompanying its financial statements. Segment reporting is required for publicly-held entities, and is not required for privately held ones.
Segment reporting is intended to give information to invest. segmental reporting the practice of reporting separately on the SALES REVENUES, COSTS and PROFITS of different segments of a company's business.
Company law in the UK requires the DIRECTOR'S REPORT to offer information to shareholders about the performance of different market segments or sectors of the company.