solidated cash flow statement. Hence, segmental “gross cash flow” represents oper-
ating results adjusted for income taxes currently payable, depreciation and amortiza-
tion, change in long-term provisions, and gains on retirements of noncurrent assets.
A more useful disclosure would perhaps be to disclose cash flow provided by oper-
ating activities for each segment (see the Oerlikon-Buhrle Group example provided
in Section 22.5).
22.5 OTHER SEGMENT REPORTING STANDARDS. Historically, segmental report-
ing requirements in most countries have been somewhat limited. However, as the “in-
ternational benchmark” was raised with the issuance of IAS 14R and the new North
American standards, some major countries responded with efforts to converge with
these internationally recognized segmental reporting standards. For example, effec-
tive for fiscal years beginning on or after April 1, 1998, Japan modified its guide-
lines^19 to come more in line with the original U.S. segment reporting standard (SFAS
14). As part of its IASC convergence project in 2000, Australia issued a new standard
that removes differences with IAS in regard to segmental reporting.^20 Additionally,
in 1998, Germany passed the “Law for Control and Transparence in Companies” and
the “Law for Improved Equity Raising Capabilities.”^21 One important change asso-
ciated with the new laws was that segment reporting became mandatory for fiscal
years beginning after December 31, 1998. GAAP 2001^22 notes no significant differ-
ences between the current German segment reporting requirements and IAS 14R.
As of 2002, the European Union’s (EU) Fourth Directive only required compa-
nies to disclose sales revenues for geographic and industry segments. Additionally,
no specific guidelines were supplied regarding what constitutes a segment. How-
ever, segmental reporting in the EU will be significantly impacted in 2005 when the
use of IAS, including IAS 14R will increase notably. In March 2002, the European
Parliament voted to require all EU listed companies, by 2005 at the latest, to prepare
consolidated accounts in accordance with IAS. Hence, all EU listed companies will
eventually adopt IAS 14R. Additionally, countries based in Central and Eastern Eu-
rope that hope to soon join the EU must now consider the significance of the EU
regulation.
22.6 COST/BENEFIT CONSIDERATIONS. Given the different segment reporting
standards and practices that exist, a firm must consider several issues as it determines
the form and extent of its segmental disclosures.
(a) Benefits of Segmental Disclosures. Analysts argue that segment data is “essen-
tial, fundamental, indispensable, and integral to the investment analysis approach.”^23
These important users of financial statement data contend that segment data enables
the user to better understand an enterprise’s past performance and facilitates judg-
ments about the enterprise as a whole including a better assessment of risks and
prospects.
22 • 20 SEGMENTAL AND FOREIGN OPERATIONS DISCLOSURES(^19) Chapman, 1999.
(^20) Andersen, BDO, Deloitte Touche Tohmatsu, Grant Thornton, KPMG, PricewaterhouseCoopers,
2002.
(^21) Miller European Accounting Guide, 1999.
(^22) Andersen et. al., 2000.
(^23) AIMR, 1993.