Functions and Meaning of “Materiality” in the Formation of Information in Financial Statements

The problem of materiality of information is related not only to audit, but also to financial, economic and managerial activities, including organization and maintenance of accounting, financial reports, analysis of an entity. The level of materiality of the information, including the materiality of deviations of the actual values of indicators from the specified parameters, predetermines the risk of uncertainty in making managerial decisions and decision-making processes as a whole. “Materiality” is unique for each entity or Group of Companies that generates IFRS reporting. That is why IFRS does not provide specific quantitative thresholds or clear rules for their determination. However, provides the qualitative factors that should be considered when assessing materiality: • Whether the misstatements allow demonstrating the compliance of the company's activities with financial forecasts - own, market, made by rating agencies or other independent analysts; • Whether the misstatements enable it to demonstrate compliance with regulations, debt or credit covenants, or other contractual requirements; • Whether misstatements convert net loss to net income or vice versa; • Whether misstatements affect key ratios or other disclosures in the financial statements to which users pay special attention; • Whether misstatements affect the size of bonuses for key management personnel; • Whether or not the segment disclosures are misstated; • Whether misstatements affect the disclosure of transactions with related parties. If a misstatement is intentional to achieve a particular disclosure option, then the misstatement is considered material, regardless of the amount. This is because the entity expected such misstatement to influence the decisions made by users of the financial statements. Keywords: Materiality; Financial statements; IFRS; Interim financial statements; Qualitative and quantitative indicators.

DETERMINANTS OF THE QUALITY OF OPERATING SEGMENT DISCLOSURE

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.

The Informational Value of Segment Data Disaggregated by Underlying Industry: Evidence from the Textual Features of Business Descriptions

I examine a fundamental determinant of disclosure quality: how underlying data are disaggregated. For this, I create a measure of industry disaggregation, which is the extent to which segment disclosures are disaggregated based on underlying industries. To identify underlying industries, I apply a deep learning algorithm that extracts textual features from Item 1 business descriptions, in which firms are required to accurately describe their products and services. Industry disaggregation captures the disclosure of underlying industries and the adherence to industry-based disaggregation criteria. Consistent with capital markets being informationally segmented by industry, I find that industry disaggregation is negatively associated with analyst forecast error and dispersion, and positively associated with analyst following and information transfers among analysts and investors. These findings indicate that financial information is more informative, and thus of higher quality, when disaggregated by standardized criteria that achieve comparability and match the information-processing strategies of capital market participants.

Segment disclosures in the financial statements of stock companies in the Republic of Serbia and the Republic of Croatia

Information about the segments of a company is an important basis for making business decisions. In order for decisions based on segment information to be adequate, that information should be communicated in accordance with regulations. This paper is aimed at examining the adequacy of the segment information of listed companies in the Republic of Serbia and the Republic of Croatia and determining whether the volume of disclosed financial segment information is related to the company size and character of the audit firm. The research reveals that, in general, the disclosure of segment information is not fully in line with the International Financial Reporting Standard 8 - Operating Segments and that the joint-stock companies with a higher value of their total assets disclose financial segment information in more detail. However, there is no statistically significant difference in the amount of the segment information disclosed between the companies whose financial statements are audited by large audit firms and those that are the clients of other audit firms.

The State of Segment Reporting by US Public Entities: 1976-2017

This paper offers an in-depth data driven overview of the history and status as of 2017 of segment reporting by public entities trading in U.S. capital markets. Our analysis focuses on the perceived issues identified in the Financial Accounting Standards Board (FASB) 2016 Invitation to Comment on FASB's Agenda - the extent of disaggregation into reportable segments, the stability of segmentation over time, the line-items disclosed, and the reconciliation of segment to consolidated totals. We document the trends in and status of segment reporting as of 2017 as another round of efforts to improve segment reporting proceeds. The paper concludes with a discussion of several unanswered questions suggested by the data. Keywords: Segment disclosures, SFAS 131, SFAS 14, ASC 280.

Segment Reporting As One of the Areas of Convergence of Financial and Management Accounting

Th e article is devoted to segment reporting as one of the areas of convergence of fi nancial and management accounting. It is noted that the consolidated fi nancial statements containing aggregated information are limited for making a number of economic decisions. Th e main normative documents regulating the disclosure and presentation of information by segments are considered. Attention is paid to the benefi ts and complexities associated with segment disclosures in fi nancial statements.

Analisis Penerapan PSAK 5 (Revisi 2009) terhadap Pengungkapan Segmen Operasi pada Perusahaan Manufaktur yang Terdaftar di Bursa Efek Indonesia (BEI)

The International Accounting Standards Board (IASB) is committed to improve their standards’ quality, which is the global accounting standards that reflect information in financial statements as transparent and comparable for public purposes. The International Accounting Standards (IAS) and the International Financial Reporting Standards (IFRS) provide guidelines in creating and interpreting companies’ financial statements (Iatridis & Dalla, 2011). The purpose of this research was to assess the impact of the application of PSAK 5 (revised 2009). PSAK 5 (revised 2009) requires segment disclosure based on the internal reporting reviewed by the operation decision maker. PSAK 5 (revised 2000) requires companies to disclose segments information based on the format of the primary and secondary segments as identified per products / services that generate the same level of risk and return. The six analytical frameworks developed for this research, namely: (1) analysis of the presentation of segment information based on PSAK 5 (revised 2000) versus PSAK 5 (revised 2009), (2) analysis of the determination and identification of operational decision-making, (3) the analysis of the definition and identification operating segments between industry sectors, (4) analysis of segment aggregation, (5) analysis of determination of the reportable segments, and (6) analysis of reported segment disclosures. In conclusion, generally, the disclosure of segment information based on PSAK 5 (revised 2009) by using the management approach yields a more complete segment report, by conveying more relevant segmental information from the standpoint of management's internal performance than the previous standard, which was PSAK 5 (revised 2000). This research found significant changes related to an increase in the disclosure of segment disclosure in business segments, segment aggregation, and basic information on company's segmental performance measurement in Indonesia.

Los factores explicativos de la divulgación por segmentos en entidades no financieras cotizadas en los mercados europeos

<p><span lang="EN-US">Segment reporting (external) is a relevant tool for investors and other stakeholders, as the information is presented in a divisional way, enabling more accurate analysis to be made for decision making. Howe­ver, reporting entities do not always assure the inherent potential of segment reporting. This research aims to identify the explanatory factors that may influence the level of segment disclosure. For this purpose, we have investigated the segment disclosures presented in accordance with the International Financial Reporting Standards (IFRS) 8 of the International Accounting Standards Board (IASB), as adopted by the European Union, based on consolidated reports and accounts (for the year 2015) of a sample of 91 entities from the Portuguese Stock Index (PSI-20), <em>Cotation Assistée en Continu </em>(CAC-40), <em>Deutscher Aktie­nindex </em>(DAX-30) and OMX Nordic 40 (OMX-N40). The findings indicate that size is directly related to both the number of operating segments disclosed and the level of disclosure required for each segment. Further, the latter seems to be also influenced by the existence of barriers to entry (directly) and the degree of internationalisation (inversely).</span></p>

International Diversification, SFAS 131, and Debt Maturity Structure

This study examines the impact of geographic segment disclosures under the Statement of Financial Accounting Standards No. 131 (SFAS 131) on the debt maturity structure of internationally diversified firms. I find that the proportion of short-maturity debt increases with a firm’s international diversification. Moreover, the implementation of SFAS 131 attenuates the positive relation between international diversification and short-maturity debt. This attenuation effect is more pronounced for firms that continue to disclose geographic segment earnings in the post-SFAS 131 period than firms that do not. As short-maturity debt subjects firms to refinancing and potential costly liquidation risks, these results suggest a beneficial role of SFAS 131 in reducing firms’ reliance on short-maturity debt to address information asymmetry and agency costs of debt arising from international diversification. Furthermore, this study suggests that enhanced mandatory disclosure has a real effect on firms’ financing activities and capital structure.