Title: A critical analysis of segmental reporting based on an international perspective : a ground for a better regulation
Authors: Thoen, V
Lefebvre, Christian
Issue Date: 2001
Publisher: K.U.Leuven - Departement toegepaste economische wetenschappen
Series Title: DTEW Research Report 0152 pages:1-36
Abstract: The financial statements of a company or group of companies give an overview of all activities of the reporting entity no matter how diverse these activities may be. However, as companies enter into new lines of business and new geographical areas -with different profit and growth potentials, varying types of risk and different returns - questions can be raised as to whether consolidated financial statements are still adequate in providing an insight into the results and financial position of the reporting entity as a whole. The additional disclosure of information about an enterprise's operations in different industries and in different geographical areas as an integral part of financial statements may provide a solution to this problem. This paper, therefore, presents a critical discussion of segmental reporting around three major aspects, namely motivation, evaluation and implementation. First of all, a motivation for legal requirements regarding segmental information is gathered from different theoretical perspectives. Secondly, a firm's incentives and impediments to both the voluntarily and the mandatory disclosure of segmental financial information are taken into consideration as they can have important implications. We conclude from this investigation that the direct and indirect costs, together with the implementation problems with respect to segmental reporting, do not outweigh the benefits resulting from an increased assessment of the entity's performance, an increased comparability of segments, and an improved control on management. Finally, we present an extensive overview of the major existing international and national accounting standards regarding segmental information disclosure. A clear distinction can be made regarding the degree of elaboration of the standards. Although company directors are left with considerable discretion regarding segment identification, the international standards as well as standards with an Anglo-Saxon origin provide more strict guidelines regarding the identification process and the information to be disclosed than does regulation from other European Union members. This investigation may be of interest to standard setting bodies in countries lacking an effective regulation on segmental reporting, as well as to accounting practitioners, and users of financial statements.
Publication status: published
KU Leuven publication type: IR
Appears in Collections:Research Center Accountancy, Leuven

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