ent segments of a business may experience differences in the rates of profitability, de-
grees of risk, and opportunities for growth.
As noted earlier, concern for investors drove much of the discussion regarding
segmental disclosures in the United States. Backer and McFarland asked financial an-
alysts to identify the major reasons for using segmental data, and identified the fol-
lowing reasons: “(1) segment reports are wanted to provide knowledge of what busi-
nesses a company is in and the relative size of the several components, (2) sales and
contributions to enterprise profit are wanted in forecasting consolidated profits, and
(3)... appraisal of the success which management of a company has had in making
acquisitions.”^3 The view of analysts, at least as related to the first point, was that per-
formance is affected by risk and prospects for future growth of earnings and that this
performance differed significantly by industry.
In spite of the concern expressed by the investing public, as noted previously, the
initial U.S. segment reporting requirements came from the government, not the ac-
counting profession. The government seemed to be interested in information regard-
ing growth and market concentration of firms in different product lines to facilitate
public-policy decisions. As noted in congressional hearings,
The relative profitability of different divisions and product lines should be brought out
in order to appraise the competitive tactics utilizing diversification. We are operating in
almost complete ignorance in this area when we do not know even the sales of many of
the major firms in different lines, let alone the profitability or losses incurred in these
lines. We cannot reach a judgment which is supportable in proposing legislation or
changes in public policy.^4Surprisingly, there was little concern exhibited over geographic disclosures; most
of the attention was initially focused on lines of business. As pointed out by Mautz,
The one geographical distinction that appears reasonably clear is that between domes-
tic and foreign operations, although even this one is questioned in practice. Once a com-
pany engages in activities within the boundaries of two or more sovereign powers, con-
ceptually it can be concluded that the independence of those two powers subjects the
company to different risks of regulation and expropriation, not to mention local customs
which may influence profit levels and growth potential. The differences between oper-
ating, for example, in the United States and in some emerging country in Africa are
quite apparent. On the other hand, the differences between operating in the United
States and Canada or England are much less apparent. In any event, the problem of re-
porting foreign activities by American business companies has been dealt with else-
where, and this particular problem seems to be satisfactorily covered by generally ac-
cepted accounting principles. Thus, it is unnecessary to regard this kind of activity as
a method of diversification requiring attention in this study.^5While Mautz did not view foreign disclosures as a pressing issue, Backer and Mc-
Farland found that financial analysts were concerned about the disclosure of pertinent
information on foreign subsidiaries. Analysts were interested in several items of ge-
ographic information, including sales and income earned in different countries or
major world areas.
22 • 4 SEGMENTAL AND FOREIGN OPERATIONS DISCLOSURES(^3) Baker and McFarland, 1968, pp. 7–12.
(^4) Id., p. 12.
(^5) Mautz, 1968, p. 9.