A Process-Based Approach to Segment Disclosures in Seasonal Industries

The purpose of this paper is to compare the segment reporting disclosures under SFAS No. 131 with those reported the previous year under SFAS No. 14. Under SFAS No. 131, firms are required to report segments consistent with the way in which management organizes the business internally. In addition, the accounting items disclosed for each segment are defined consistent with internal segment information used to assess segment performance. For many companies, this represents a significant change from the approach used to report segments under SFAS No. 14. Under SFAS No. 14, firms were required to disclose segment information by both line-of-business and geographic area with no specific link to the internal organization of the company or the measurements that were used for internal decision making. As a result, many complained that the resulting disclosures were highly aggregated and of limited use for decision-making purposes. We find that the change in segment reporting requirements under SFAS No. 131 has made a relatively significant impact on the disclosure of segment information. Over two-thirds of the sample firms have redefined their primary operating segments upon adopting SFAS No. 131. There has also been an increase in the number of firms providing segment disclosures and companies are disclosing more items for each operating segment. For enterprise-wide disclosures, the proportion of country-level geographic segment disclosures has increased, while the proportion of broader geographic area segment disclosures has decreased. However, the number of firms reporting earnings by geographic area has declined greatly as this item is no longer required to be disclosed for firms reporting on a basis other than geographic area.

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Do Reconciliations Of Segment Earnings Affect Stock Prices?

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v28i5.7248 ◽

2012 ◽

Vol 28 (5) ◽

pp. 1085 ◽

Cited By ~ 4

Author(s):

Dana Hollie ◽

Shaokun Carol Yu

Keyword(s):

Financial Reporting ◽

Stock Prices ◽

Firm Growth ◽

Abnormal Returns ◽

Cash Flows ◽

Management Approach ◽

Firm Level ◽

Return On Equity ◽

The Difference ◽

Segment Disclosures

While SFAS No. 131 is intended to increase the transparency of financial reporting using a management approach, it may reduce shareholders ability to interpret segment disclosures relative to the industry approach employed under SFAS No.14. This study investigates whether segment reconciliation differences affect stock prices and whether abnormal returns can be earned using information about two components of earnings: aggregated segment earnings and segment earnings reconciliations. We compute reconciliations as the difference between firm-level consolidated earnings and aggregated segment-level earnings. Firms that report negative SERs have greater sales and profitability, greater return on equity, as well as more operating cash flows and firm growth. This suggests that firms that report aggregated segment earnings greater than firm-level consolidated earnings may be better off financially. Our findings show that mispricing does occur when firms report positive SERs by the market, underestimating the segment earnings reconciliation component of earnings persistence. Investors can also earn positive abnormal returns when investors take a long (short) position with the portfolio with the highest (lowest) absolute SERs. On the contrary, we find investors earn negative abnormal returns when firms report negative SERs. Collectively, this study provides evidence that mispricing occurs and that investors over/underestimate the importance and/or persistence of segment earnings reconciliations.

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DETERMINANTS OF THE QUALITY OF OPERATING SEGMENT DISCLOSURE

Jurnal Akademi Akuntansi ◽

10.22219/jaa.v4i1.15534 ◽

2021 ◽

Vol 4 (1) ◽

Author(s):

Arina Adilla Hidayat ◽

Mekani Vestari

Keyword(s):

Audit Quality ◽

Manufacturing Sector ◽

Reporting Quality ◽

Manufacturing Companies ◽

Industry Competition ◽

Analysis Technique ◽

External Pressures ◽

Segment Disclosure ◽

Segment Disclosures

The Indonesian government encourages the manufacturing sector to diversify its business. The operating segments disclosures will be more important. Meanwhile, the provisions regarding this disclosure are still voluntary. There are several studies in Indonesia. However, the proxies used do not reflect the quality of the operating segment disclosures comprehensively. Therefore, this study aims to get empirical evidence on the determinants of the quality of operating segment disclosure by using Reporting Quality Index. The population was manufacturing companies listed on the IDX for 2015 - 2018. The data analysis technique uses multiple linear regression. The results show that firm size, leverage, degree of internationalization, and audit quality have a positive effect, while industry competition, profitability, and company growth have no effect on the quality of disclosure in the operating segment. This implies that external pressures have higher impact.

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Managers' Motives to Withhold Segment Disclosures and the Effect of SFAS No. 131 on Analysts' Information Environment

The Accounting Review ◽

10.2308/accr.2005.80.3.751 ◽

2005 ◽

Vol 80 (3) ◽

pp. 751-772 ◽

Cited By ~ 258

Author(s):

Christine A. Botosan ◽

Mary Stanford

Keyword(s):

Poor Performance ◽

Information Environment ◽

Financial Accounting ◽

Weak Evidence ◽

Public Data ◽

Segment Disclosure ◽

Segment Disclosures ◽

The Cost ◽

The Impact ◽

Segment Information

Using retroactive disclosures required by Statement of Financial Accounting Standards (SFAS) No. 131, we examine managers' incentives for withholding segment information under SFAS No. 14 and the impact of SFAS No. 131 on analysts' information environment for a sample of firms that previously reported as single-segment firms and initiated segment disclosure with SFAS No. 131. We examine this set of firms because they likely had the strongest incentives to withhold segment information and analysts potentially had the most to gain when these firms were forced to begin providing segment disclosures under SFAS No. 131. We find that these firms used the latitude in SFAS No. 14 to hide profitable segments operating in less competitive industries than their primary operations. However, we find no evidence to suggest that these firms used the latitude in SFAS No. 14 to mask poor performance. In contrast, our results suggest that by withholding segment information, these firms allowed themselves to appear as if they were underperforming their competition when this was not the case. Thus, their decision to withhold segment disclosures under SFAS No. 14 appears to be motivated by a desire to protect profits in less competitive industries. In terms of the impact of SFAS No. 131 on analysts' information environment, our evidence suggests that SFAS No. 131 increased analysts' reliance on public data, but we provide weak evidence to suggest that this shift may have come at the cost of a marginal increase in overall uncertainty and squared error in the mean forecast.

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