Statement of Financial Accounting Standard (SFAS) 14 required companies to dis-
close certain information related to operations in different industries, foreign opera-
tions, export sales, and major customers. Industry segments were determined by
grouping products and services by lines of business. The required disclosures for in-
dustry segments included: revenues, operating profit or loss, identifiable assets, de-
preciation and amortization, capital expenditures, equity method income, and invest-
ment in equity-method investees. SFAS 14 also required that revenues, operating
profit, and identifiable assets be disclosed for foreign operations. In regard to major
customers, where applicable companies were required to disclose the fact that rev-
enues for any one customer accounted for 10% of total revenues and the amount of
revenues from any such customer. Additionally, companies were to identify the seg-
ment(s) reporting the revenues.
In a 1993 position paper, the Association for Investment Management and Re-
search (AIMR) noted that segment information is important but that SFAS 14 was in-
adequate. It argued:
FAS 14 requires disclosure of line-of-business information classified by “industry seg-
ment.” Its definition of segment is necessarily imprecise, recognizing that there are nu-
merous practical problems in applying that definition to different business entities op-
erating under disparate circumstances. That weakness in FAS 14 has been exploited by
many enterprises to suit their own financial reporting purposes. As a result, we have
seen one of the ten largest firms in the country report all its operations as being in a sin-
gle, very broadly defined industry segment.^6The potential for improving segment reporting was also strongly expressed in the
reportImproving Business Reporting—A Customer Focus.^7 Improvements in SFAS
14 disclosures of business segment information were listed as the Committee’s first
recommendation. The Special Committee’s list of the most important improvements
needed in segment reporting included:
- Greater number of segments for some enterprises
- More items of information about segments
- Segmentation that corresponds to internal management reports
- Consistency of segment information with other parts of an annual report
As a result of the AIMR position paper, the report of the AICPA Special Commit-
tee on Financial Reporting, and other comments on SFAS 14, the FASB and Ac-
counting Standards Board (AcSB) of the Canadian Institute of Chartered Accoun-
tants jointly developed “Reporting Disaggregated Information about a Business
Enterprise.” The new North American standard was issued in 1997 and became ef-
fective for fiscal years beginning after December 15, 1997.
(a) General Objectives of SFAS Statement No. 131. As noted above, an important
aspect of the new North American standard is that public business enterprises must
provide disaggregated information for operating (reportable) segments based on
management’s organization of the enterprise. Additionally, enterprise wide informa-
22 • 6 SEGMENTAL AND FOREIGN OPERATIONS DISCLOSURES(^6) AIMR, 1993, p. 60.
(^7) American Institute of Certified Public Accountants Special Committee on Financial Reporting, 1994.