上海金融學院會計學院財務管理系

InternationalAccounting

andMultinationalEnterprises上海金融學院會計學院財務管理系王純2024/4/1InternationalAccounting

andM1INTERNATIONALSEGMENTREPORTINGChapterEight2024/4/1INTERNATIONALSEGMENTREPORTIN2LEARNINGOBJECTIVES

1.Identifythemajorusesandusersofsegmentinformation2.Discussthemajorbenefitsofsegmentdisclosurefromtheperspectiveofpredictiveabilitytestsandstockmarketstudies3.Highlightthecostsofsegmentdisclosuresfromthestandpointofpreparationanddisclosureofinformationtocompetitors2024/4/1LEARNINGOBJECTIVES1.Identi3LEARNINGOBJECTIVES4.ReviewthesegmentreportingrequirementsoftheInternationalAccountingStandardsCommittee(IASC)5.Comparethedifferentregulationsforsegmentdisclosuresaroundtheworld,especiallyintheUnitedStatesandtheUnitedKingdom6.Examinetheproblemsofsegmentreportinginpracticeanddiscusswaystomakesegmentdisclosuresmoreuseful2024/4/1LEARNINGOBJECTIVES4.Reviewt4InternationalSegmentReportingSegmentReportingisthecounterpointtoConsolidatedFinancialStatements.TrendisinrecentresponsetodiversificationbyMNE’s,especiallywithregardtogeographicalactivity.12024/4/1InternationalSegmentReportin5TrendtowardSegmentReporting

Issues:Whetherconsolidatedfinancialstatementsareadequate,considering:Diverseactivitiesindiverselocations;Differentprofitability,risk,growthcharacteristics.Differentmethodsofconsolidationhaveadifferenteffectontheincomestatementandbalancesheet.22024/4/1TrendtowardSegmentReporting6UsersandUsesofSegmentInformationInvestorsAllowcomparisonsofcompany-specificinformationwithexternalinformationforbetterriskassessmentandpotentialforfuturegrowth.EmployeesAllowcomparisonsofintra-companycompensationandbenefits.CreditorsAllowamoreaccurateassessmentofrisk.HostGovernmentsAllowcomparisonsofcompensation,workingconditions,andtaxbase.32024/4/1UsersandUsesofSegmentInfo7A.Investors1.Interestedincashflowsandriskoruncertaintyofthecashflows2.Interestedincorporationasawholeratherthanspecificsegments;however,factorsinfluencingindustryorgeographicsegmentsinfluencecashflowsasawhole2024/4/1A.Investors1.Interestedin8A.Investors3.Needdisaggregationofsalesandprofitsoflinesofbusinessandgeographicsegments4.Disaggregationisespeciallyhelpfulfordiversifiedcorporations;easiertomakecomparisonswithothersimilarlinesofbusiness2024/4/1A.Investors3.Needdisaggreg9BenefitsofSegmentReportingGaming-Perceptionthatsegmentreportingis“costless”Tests:

PredictiveAbilityTest-Testsaccuracyoffuturesales/earningsforecastsbetweenconsolidateddataanddisaggregateddata.StockMarketReactionTest-Ifinformationhaseffectonthestockmarket,thentheinformationisassumedused.Iftheinformationhasnoeffect,theninformationassumednotused.42024/4/1BenefitsofSegmentReportingG10PredictiveAbilityTest5Moreaccurateifbasedonline-of-business(LOB)segmentaldatathanonconsolidatedearnings;U.S.data-basedforecastsmoreaccurateifbasedonsegmentearningsratherthansegmentalturnover.2024/4/1PredictiveAbilityTest5Morea11StockMarketReactionTest6SomeevidencethatLOBandgeographicalsegmentdatadisclosurereduceassessmentsofrisk.SignificantrelationshipbetweendisclosureandriskinU.S.andU.K.However,someevidenceisinconclusiveorevenconflicting.2024/4/1StockMarketReactionTest6Som12Stockmarketreactiontests1.Morevalidthanpredictiveabilitytestssincewearelookingatthedirectimpactonstockpricesofinformation2.Resultsaremixed2024/4/1Stockmarketreactiontests113A.Surveytestsusersalwayswantmoreinformation,eventhoughtheymayinaccuratelyassesstheirvalueorassumethatanythingfreeisofvalue(gaming)2024/4/1A.Surveytestsusersalways14B.Predictiveabilitytests1.Comparisonoftheaccuracyofforecastsoffuturesalesorearningsbaseduponconsolidateddatatothatofforecastsbasedondisaggregateddata2024/4/1B.Predictiveabilitytests1.15B.Predictiveabilitytests2.Theassumptionisthatuserswillusedisaggregatedinformationtomakeforecasts,andthathasnotbeenproven3.ForecastsbasedonLOBdataaremoreaccuratethanthosebasedonconsolidatedearnings2024/4/1B.Predictiveabilitytests2.16B.Predictiveabilitytests4.Forecastbasedonsegmentearningsaremoreaccuratethanthosebasedonsegmentsales(U.S.butnotU.K.)5.SegmentsaremorehelpfulforsmallerthanforlargerMNEs6.Similarresultsonmorelimitedgeographicsegmentstudies2024/4/1B.Predictiveabilitytests4.17CostofSegmentReportingWhethercostsofcompiling,processing,anddisseminatinginformationexceedsbenefits.Internalcosts,Benefitscompetition,Investorevaluation.72024/4/1CostofSegmentReportingWheth18CostofSegmentReportingA.Costofcompiling,processinganddisseminatinginformation1.Norealevidencethatthisisamaterialcost2.AssumethatMNEsusedisaggregatedinformationforinternalpurposes,soitshouldbeavailable2024/4/1CostofSegmentReportingA.C19TheCostsofSegmentalReportingB.Costofcompetitivedisadvantage1.Mayapplyatthecorporatelevel,maynotbeaproblemattheleveloftheentireeconomy.2.Maybeanadvantage--dependsonattitudestowardsaidingcompetitionandtendstobecasespecific2024/4/1TheCostsofSegmentalReport20TheCostsofSegmentalReportingC.Benefittocompetitors1.Maybehelpfultosociety,evenifitisnothelpfultothedisclosingfirm2.Problemwouldbeatthegloballevelwheretherearedifferencesindisclosurerequirements,notatthenationallevelwheredisclosurerequirementsarethesame3.Resultsinalevelplayingfieldforsingleindustryorsinglecountryfirms2024/4/1TheCostsofSegmentalReporti21TheCostsofSegmentalReportingD.Maybemisleading1.Theassumptionisthatthesegmentsareautonomous,whichmaybeanerroneousassumption2.Globallyintegratedcompaniescannotbedisaggregatedeasily3.Hardtomeasurethiscost2024/4/1TheCostsofSegmentalReporti22InternationalAccountingStandardsIAS141981-CloselyfollowedU.S.requirements.Internalandexternalsalesshownseparately.1997-Lookstoorganizationalstructureandinternalreportingsystemstodetermine“segments.”Limitsscopeofmanagerialdiscretion.82024/4/1InternationalAccountingStand23IV.InternationalAccountingStandardsA.IASCrequirements1.IASCIAS14issuedin1981revisedin19972.Disclosuresprimarysegmentlineofbusinessandgeographic--seeExhibit8.1a.Revenues(externalandinternalsegmentshownseparately

b.OperatingResultc.Carryingamountofsegmentliabilitiesd.Costtoacquireproperty,plantequipmentandrelateddepreciation/amortizatione.Significantnon-cashexpensesf.Shareofprofitofjointventuresg.Secondarysegmentinformationisalsorequired2024/4/1IV.InternationalAccounting24RegulationsAroundtheWorld9UnitedStates-Mostextensiveaccountingrequirementsintheworld.SEC-AllowLOBreporting.FASB-IssuedSFAS14,requiringdisclosureofrevenuesfrom:Unaffiliatedcustomers,Intragrouptransfers,Operatingincome,Profitabilitymeasures,andAssets.SFAS131-SimilartoIAS14,limitsmanagerialdiscretion.2024/4/1RegulationsAroundtheWorld9U25A.U.S.requirements1.1969SECrequirements;1976FASBStatement142.Disclosuresforbothlineofbusinessandgeographicsegments--seeExhibit8.2a.Revenuesfromunaffiliatedcustomers

b.Intra-grouptransfersc.Operatingprofitorlossornetincomeorotherprofitabilitymeasuresd.Identifiableassets2024/4/1A.U.S.requirements1.1969SE26A.U.S.requirements3.Additionaldisclosuresforindustrysegmentsa.Depreciationb.Capitalexpendituresc.Equityinthenetincomeandassetsofassociatedcompanies2024/4/1A.U.S.requirements3.Additio27A.U.S.requirements4.SFAS131(1997)nowlimitsmanagementjudgmentindeterminingwhatconstitutesasegmenttobeconsistentwithorganizationalstructurelikeIAS142024/4/1A.U.S.requirements4.SFAS13128A.U.S.requirements5.Ageographicsegment--segmentsalesoridentifiableassetsareatleast10%oftotalsalesortotalidentifiableassets2024/4/1A.U.S.requirements5.Ageogr29RegulationsAroundtheWorld(Cont.)UnitedKingdom-Influencedby:EUFourthandSeventhDirectives,RevisedCompaniesAct-RequiresgeographicalsegmentturnoverandLOBsalesandpre-taxprofitdisclosure.Greatermanagerialdiscretionindeterminingsegmentinformation,EmmanuelandGray(1977)-Showedinadequateandinconsistentdisclosures.SSAP25-RequiressegmentnetassetsforLOBandgeographicalsegments.102024/4/1RegulationsAroundtheWorld(30B.U.K.requirements1.1965LondonStockExchange;CompaniesActof19672.Inclusionof4thand7thdirectivesintheCompaniesActof1981and1989(incorporatedintheCompaniesActof1985asamended)3.CompaniesActrequiresgeographicsalesandlineofbusinesssalesandprofits2024/4/1B.U.K.requirements1.1965Lond31B.U.K.requirements4.Lotsofmanagementdiscretiontodecidewhetherornottodisaggregateandthenwhatthesegmentsshouldlooklike--noguidanceastowhatismaterialorwhatareportablesegmentis5.Discretionresultedindisclosuresthatareinadequateorinconsistent2024/4/1B.U.K.requirements4.Lotsofm32B.U.K.requirements6.SSAP25"SegmentalReporting"in1990revisessegmentreportingsimilartoUSa.Requiresdisclosureofsegmentnetassetsb.Geographicalsegmentationofsalesisrequiredbysourceanddestination

c.Segmentprofitsarerequired2024/4/1B.U.K.requirements6.SSAP25"3311RegulationsAroundtheWorld(Cont.)OtherCountries:AustralianandCanadaverysimilardisclosurerequirementstoUnitedStatesandUnitedKingdom.EuropeanUnion-FourthandSeventhDirectives.Japan-SimilartoIAS.BrazilandIndia-Norequirements.2024/4/111RegulationsAroundtheWorld34SegmentReportingProblems12Difficulttoverifydisclosedinformation,specifically:Commoncostallocations,Intragrouptransfers,Transferpricing.Difficulttoidentifya“segment”:Regulationsnotspecific,U.S.andU.K.practicetendstobecontinent-based.2024/4/1SegmentReportingProblems12Di35VII.SegmentalReportingProblemsA.Generalintroduction1.ProblemsofverifiabilityofinformationsinceitnowhastobeauditedinbothU.S.andU.K.--costallocations,transferpricing2.Problemsofsegmentidentification--auditorneedstodetermineifthesegmentsarereasonableintheabsenceofguidelinesfordeterminingthesegments2024/4/1VII.SegmentalReportingProb36VII.SegmentalReportingProblems3.Comparabilityhasbeensacrificedforrelevance,butthisopensthedoortomanipulation4.Segmentationalongorganizationallinesisdesirableandmoreaccuratelyreflecthowmanagementviewsthecompany5.Thegreaterthedisaggregating,themorelikelytheneedtoallocatecommoncosts,whichcoulddistortsegmentprofits2024/4/1VII.SegmentalReportingProb37TheDual-YardstickApproach13EmmanuelandGray(1978):SimilartoIASCandU.S.organizationalapproach;BringconsistencybetweendisclosuresandMNEorganizationalstructure.Aunitisa“segment”if:Morethan50%ofitsphysicalsalesvolumesoldexternally,Revenueandprofitabilityinformationisaccumulatedregularlyfortheunit,andResponsibilityfortheunit’soperationperformanceresideswithunitmanager.2024/4/1TheDual-YardstickApproach13E38B.Thedual-yardstickproposal1.Establishsegmentsconsistentwithorganizationalstructure2.Relateindustry/countrygroupingstoanexternalstandard--likeanindustrystandard2024/4/1B.Thedual-yardstickproposa393.Requirementsforasegmenta.Over50%ofsalesvolumeisexternalb.Revenueandprofitabilityinformationisaccumulatedregularlyfortheunitc.Responsibilityfortheunit'soperatingperformanceresideswiththeimmediatemanageroftheunit2024/4/13.Requirementsforasegmenta40B.Thedual-yardstickproposal4.DisaggregatetotheclosestSICgrouptoallowforcomparison;disaggregationstartsatthetopandworksdowntotheproperlevel5.Figure8.1--disaggregationofLOBtoareportablesegment2024/4/1B.Thedual-yardstickproposa41B.Thedual-yardstickpropo