{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

8 CHAPTER SEGMENT AND INTERIM REPORTING

8 CHAPTER SEGMENT AND INTERIM REPORTING - 8 CHAPTER SEGMENT...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
8 CHAPTER SEGMENT AND INTERIM REPORTING Answers to Questions 1. Consolidation presents the account balances of a business combination without regard for the individual component companies that comprise the organization. Thus, no distinction can be drawn as to the financial position or operations of the separate enterprises that form the corporate structure. Without a method by which to identify the various individual operations, financial analysis cannot be well refined. The word disaggregated refers to a whole that has been broken apart. Thus, disaggregated financial information is the data of a reporting unit that has been broken down into components so that the separate parts can be identified and studied. If significant, SFAS 14 required disaggregated disclosure to describe four different aspects of a company s operations: industry segments, foreign and domestic operations, export sales, and sales to major customers. A dominant industry segment was one that made up more than 90 percent of a company s revenues, operating profit, and identifiable assets. SFAS 14's flexibility in defining industry segments opened the possibility for companies to define segments in such a way that a dominant industry segment would result. Companies with dominant industry segments were not required to provide segment disclosures, thereby limiting the potential usefulness to analysts. According to SFAS 131, the objective of segment reporting is to provide information to help users of financial statements: a. better understand the enterprise s performance, b. better assess its prospects for future net cash flows, and c. make more informed judgments about the enterprise as a whole. Defining segments on the basis of a company s organizational structure will remove much of the flexibility and subjectivity associated with defining industry segments under SFAS 14. In addition, the incremental cost of providing segment information externally should be minimal because that information is already generated for internal use. Analysts should benefit from this approach because it reflects the risks and opportunities considered important by management and allows the analyst to see the company the way it is viewed by management. This should enhance the analyst s ability to predict management actions that can significantly affect future cash flows. SFAS 131 defines an operating segment to be a component of an enterprise: a. that engages in business activities from which it earns revenues and incurs expenses, b. whose operating results are regularly reviewed by the chief operating decision maker to assess performance and make resource allocation decisions, and c. for which discrete financial information is available. Two criteria must be considered in this situation to determine an enterprise s operating segment. If more than one set of organizational units exists, but there is
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern