eral disclosure practices. The chapter also discusses the pros and cons of additional
disclosure to the firm and discusses items of segmental data which firms should con-
sider providing on a “voluntary” basis to better satisfy the needs of financial state-
ment users.
The major impetus for segmental disclosures has been the needs of capital mar-
kets. During the 1950s and 1960s, the view was that financial statement analysis was
difficult as firms were diversifying and thereby adding different lines of business to
their traditional lines. A disaggregation of these diverse lines of business through seg-
mental reporting would allow investors to better predict the risk and return of the
firm.
Governments have also been influential in a variety of ways. As discussed later in
this chapter, the initial segment reporting requirements in the United States were de-
veloped by the government rather than the accounting profession. In the United
States, this governmental influence resulted from concern about the increase in the
conglomerate movement.
Other sources of government influence are evident in the activities of the United
Nations (UN) and the Organization for Economic Cooperation and Development
(OECD), where governments are preeminent in their influence. Interest in segmental
reporting within UN and OECD agencies has revolved primarily around the influence
of the MNC in host countries.
(b) Influential Factors in the United States. The movement to disaggregate financial
statements accelerated rapidly during the 1960s when the merger movement was in
full swing. During the late 1950s, more than 60% of mergers took place between
firms in the same line of business. By the late 1960s, same industry mergers had
dropped to less than 50%.
The 1960s was a time of great discussion about the inadequacy of existing finan-
cial reporting standards and guidelines, especially in the case of conglomerates. The
U.S. Senate Subcommittee on Antitrust and Monopoly and the Securities and Ex-
change Commission (SEC) both conducted a series of hearings that resulted in a call
for “the kind of information needed to evaluate the experience and prospects of con-
glomerate companies.”^1
At the same time, a number of private-sector studies on segmental information
were conducted. The most important basic studies were conducted by Mautz for the
Financial Executives Institute and by Backer and McFarland for the National Asso-
ciation of Accountants (now the Institute of Management Accountants). These stud-
ies surveyed bankers, financial analysts, and investment advisors to determine the ad-
vantages and disadvantages of increased disclosures. These two studies formed the
empirical basis for most of the discussion leading to segmental disclosure standards.
Mautz’s definition of a diversified company identifies the reasons for additional
disclosures. A diversified company is one “which either is so managerially decen-
tralized or lacks operational integration, or has such diversified markets that it may
experience rates of profitability, degrees of risk, and opportunities for growth which
vary within the company to such an extent that an investor requires information about
these variations in order to make informed decisions.”^2 Thus, the key is that differ-
22.2 EVOLUTION OF SEGMENTAL DISCLOSURE STANDARDS 22 • 3(^1) Rappaport and Lerner, 1969.
(^2) Mautz, 1968.