Segment Disclosures under SFAS No. 131: Has Business Segment Reporting Improved?

Abstract

In response to user concerns regarding segment reporting, the FASB issued SFAS No. 131, Reporting Disaggregated Information about a Business Enterprise, in 1997. SFAS No. 131 became effective for fiscal years beginning on or after January 1, 1998. This research examines the segment disclosures of U.S. Global 1000 companies for both 1997 and 1998 to ascertain the impact and effectiveness of SFAS No. 131 in practice. Specifically, this research considers whether the new requirements have resulted in (1) a greater number of line-of-business (LOB) segments for some enterprises, particularly those who claimed to operate in one LOB under SFAS No. 14, (2) enterprises reporting more items of information about each segment, and (3) improved consistency of segment information with other parts of the annual report. The research also addresses whether restructuring by some firms might limit the provision of additional segment information under SFAS No. 131. The findings indicate significant changes from reporting under SFAS No. 14 including increased consistency with information in the MD&A and other annual report disclosures. However, the practices of a significant minority of companies continue to give some cause for concern.

Segment Information: What Do European Small and Mid-Caps Disclose?

“…The number of segments reported tends to increase, as does the number of items while the amount of geographic information declines. Street, Nichols and Gray (2000) also observe an improvement in segment reporting (greater number of segments and more information published) for the largest American firms after adoption of the SFAS 131 standard. Thinner geographic information is also observed (steep decline in the disclosure rate of earnings by geographic area.…”

Critical accounting policy and estimate disclosures: Company response to the evolving SEC guidance

“…Consistent with prior studies of financial disclosure (e.g., Street, Nichols, & Gray, 2000), we excluded financial institutions and companies with major merger activities. After excluding companies that did not meet our selection criteria we were left with 209 companies.…”

“…Content analysis is frequently used in studies that investigate how companies re-spond to changes in disclosure requirements brought about by new financial accounting standards and releases (Herrmann & Thomas, 2000;Marquardt & Wiedman, 2007;Roulstone, 1999;Street et al, 2000). Most of the company response studies analyzed disclosures for the year directly before and the year directly following the change in disclosure requirements (see also Ahmed, Kilic, & Lobo, 2006;To fully capture the extent of company compliance with the SEC's guidance for both narrative and quantitative disclosures, we separately identified narrative and quantitative disclosures within the coding scheme and subsequent analysis.…”

Divulgação De Informações Por Segmento: Panorama Da Aplicação Do CPC 22

“…Estudos relatam que a utilização do SFAS 131 e do IFRS 8, em substituição às normas anteriores, proporcionou melhoria nas informações prestadas pelas empresas pela desagregação de linhas de produtos e também pelo aumento no número de segmentos divulgados (Berger & Hann, 2003;Street, Nichols & Gray, 2000;Ettredge, Kwon, Smith & Stone, 2006;Nichols & Street, 2007;Mardini, Crawford & Power, 2012). No mercado brasileiro, as empresas divulgaram entre um e oito segmentos.…”