Segmented Financial Information on External Reports:

The Financial Accounting Standards Board (FASB) now requires that companies in the united states include segmented financial and other data in their annual reports and that the segmented reports prepared for external users must use the same method and definitions that the companies use in internal segmented reports that are prepared to aid in making operating decisions. This is a very usual requirement. Companies are not ordinarily required to report the same data to external users that are reported internally for decision making purposes. This may seem like a reasonable requirement for the FASB to make, but it has some serious drawbacks. First segmented data are often highly sensitive and companies are reluctant to release such data to the public for the simple reason that their competitors will then have access to the data. Second companies must reconcile their segmented financial statements, which need not be prepared under Generally Accepted Accounting Principles (GAAP). It is important to realize that the segmented income statement prepared on Segment reporting and profitability analysis-segmented income statements page does not conform to GAAP. For example statements prepared in accordance with GAAP do not distinguish between fixed and variable costs and between traceable and common costs. To avoid the complications of the reconciliations between non-GAAP segment earnings and GAAP consolidated earnings, it is likely that at least some managers will choose to construct their segmented financial statements so as to be within GAAP. This will result in more occurrences of the problems.

 

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