Abstract

The paper examines the usefulness and implications of segment reporting standards based on the review of extant literatures. Segment reporting provides information about an entity’s operations which enables users of financial reports to assess and make informed decision on the true position and performance of the business and geographical segments a diversified entity is operating. The advocacies to make companies disclose adequately segment information resulted in the issuing of various segment standards such as Statement of Financial Accounting Standards (SFAS) 14 and 131, International Accounting Standards (1AS 14) and IAS 14R and lastly International Financial Reporting Standards (IFRS) 8.The amendments to, and/ or replacement of the standards were due to the reported deficiencies and/or criticisms by users of financial statements and other stakeholders. Following the convergence project of the IASB and US FASB, the IFRS 8 which was a replica of SFAS 131 was adopted for reporting segment information. Although IFRS 8 has been found to result in increased disclosure of segment information, there are various concerns and criticisms of the standard. These concerns and criticisms are significant enough to undermine the usage of IFRS 8 and render it less relevant. Therefore the paper recommends more post implementation reviews by the IASB and academic researches into the IFRS 8 in order to address these concerns and improve the quality of segment reporting standards. DOI: 10.5901/mjss.2015.v6n6p30

Highlights

  • Segment reporting arose due to the need to better understand the performance of companies

  • There are some concerns following the initial adoption of International Financial Reporting Standards (IFRS) 8 by stakeholders (Crawford, Helliar and Power,2010b; Perrin,2012).These concerns include: IFRS 8 was based on the approach adopted by Statement of Financial Accounting Standards (SFAS) 131, the risk of lower quality disclosures, concerns about who the CODM is/are, incomparable information, the lack of consistency in reporting formats for operating segments, the potential for companies to restrict their disclosures on geographical segments, users suspicion that preparers could choose not to include information that it does not require and liabilities to be analyzed on a segmental basis

  • In this paper we examine the usefulness and implications of various segment standards reporting issued by the major standard setters like the International Accounting Standards Board (IASB) and FASB

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Summary

Introduction

Segment reporting arose due to the need to better understand the performance of companies. It was to assist users of financial statements with the ability to see what management may do in the future as well as recognize areas the companies get their resources. The United States Financial Accounting Standards Board (US FASB) argued that a company by providing segment information would help users to assess the underlying cause of prior cash flows, performance and future prospect of the company. The business and geographical segments are subjected to a lot of risks like impact of technology changes, government policies, exchange rate fluctuation or volatility, international comparative advantages and political instability.

Origin of Accounting Standards on Segment Reporting
Segment Reporting Under SFAS 14
Segment Reporting under SFAS 131 – The Management Approach
Comparison between SFAS 14 and SFAS 131
Disclosures
Segment Disclosures and Competitive Harm under SFAS 14 and SFAS 131
A comparison of IAS 14 and IAS 14 Revised
Comparison between IAS 14 R and SFAS 131
Applied to Information in operating segment
Findings
Conclusion and Recommendations
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