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. |
