few exceptions, users of U.S. GAAP financial statements are missing information
viewed as useful by both the FASB and IASC (now IASB).
IAS 7, “Cash Flow Statements,” notes that disclosing cash flow information for
each industry segment and geographic segment is relevant to understanding the en-
terprise’s overall financial position, liquidity, and cash flows.^27 Accordingly, IAS 7
and IAS 14R both encourage, but do not require, disclosure of segment cash flow in-
formation. In the Exposure Draft preceding SFAS 131, the FASB noted that the
Board considered requiring disclosure of operating cash flow for each operating seg-
ment; however, the Board eventually elected not to require the disclosure.^28 Studies
have found that few of the companies following U.S. GAAP or IAS disclose segment
cash flow data. Hence, with few exceptions, the users of U.S. GAAP and IAS finan-
cials are denied access to information viewed as useful by the FASB and IASC (now
IASB).
In the Exposure Draft preceding SFAS 131, the FASB argued that disclosure of re-
search and development (R&D) included in segment profit/loss would provide users
with information about the operating segments in which an enterprise is focusing its
product development efforts. The Board also noted that disclosure of R&D had been
requested by a number of financial statement users and was specifically requested in
both the AICPA’s Special Committee report and the AIMR’s 1993 position paper. Yet,
neither SFAS 131 nor IAS 14R require disclosure of R&D by segment. Again, users
are denied access to potentially useful information as studies,^29 found that few com-
panies following U.S. GAAP or IAS disclose R&D data by segment.
While research indicates the disclosure of voluntary segmental data by U.S.
GAAP and IAS GAAP companies is limited, there are notable exceptions. For ex-
ample, as illustrated in Exhibit 22.4, Bayer, which prepares financial statements in
accordance with IAS, provides several pieces of voluntary data in its 2001 accounts.
Voluntary disclosures for Bayer’s line of business–based primary segments include:
multiple measures of segment profitability and segment assets, R&D, number of em-
ployees, gross cash flow, and select ratios (return on sales and cash flow return on in-
vestment). While only three items of information are required to be disclosed for
Bayer’s secondary segments, which are based on geography, the company provides
all items required for primary segments plus those listed above.
While the IASC (now IASB) and FASB argue that segment cash flow data is use-
ful, as noted in section 22.3, Bayer’s disclosure of “gross cash flow” may be of some-
what limited use. A more useful format for providing segment cash flow data is pro-
vided by the 1999 segmental disclosures of Oerlikon-Buhrle Group (now Unaxis) as
illustrated in Exhibit 22.5. In its 1999 accounts, Oerlikon-Buhrle, which at the time
was in the process of discontinuing several industry segments, disclosed funds
from/used by operations, funds from/used by investing activities, and funds
from/used by financing activities for each of the company’s primary segments. The
segment cash flow data ties to the company’s consolidated cash flow statement.
As noted previously, IAS 14R allows companies to utilize matrix reporting. The
IASC argues that a “matrix presentation,” whereby both line of business segments
22 • 22 SEGMENTAL AND FOREIGN OPERATIONS DISCLOSURES(^27) IASC, 1997.
(^28) Street, Nichols, and Gray (FASB Statement No. 131 companies) and Street and Nichols (IAS 14R
companies).
(^29) Street, Nichols, and Gray, 2000 and Street and Nichols, 2002.