Segment Reporting—Theory The following article appeared in the Wall Street Journal. WASHINGTON—The Securities and Exchange Commission staff issued guidelines for companies grappling with the problem of dividing up their business into industry segments for their annual reports. An industry segment is defined by the Financial Accounting Standards Board as a part of an enterprise engaged in providing a product or service or a group of related products or services primarily to unaffiliated customers for a profit. Although conceding that the process is a “subjective task” that “to a considerable extent, depends on the judgment of management,” the SEC staff said companies should consider . . . various factors . . . to determine whether products and services should be grouped together or reported as segments.
(a) What does financial reporting for segments of a business enterprise involve?
(b) Identify the reasons for requiring financial data to be reported by segments.
(c) Identify the possible disadvantages of requiring financial data to be reported by segments.
(d) Identify the accounting difficulties inherent in segment reporting.
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February 18, 2011

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