Benefits Of Segment Reporting

This information may be broken down by different types of industry, different parts of the world, a combination of industry and geographical areas, or any other basis that the company thinks helpful for the reader. Also included, usually in the notes to the financial statements, will be disaggregated or segmented financial information, molly referred to as segment reporting. Segment reporting involves breaking down the enterprise into its constituent parts or segments and reporting financial information for each of these.

A company can segment its operations in a number of ways, but the most common are segmentation by industry or type of business (often called line of business, or LOB), by geographical area (either in terms of location of operations or location of customers) or by a combination of both of these.

An example of a very simple set of geographical segment disclosures is given in Table 19. 1 , which produces some of the disclosures made by the US company Caterpillar (this shows the US requirements for secondary segments, as discussed below).

As can be seen, Caterpillar disaggregated its sales or turnover and its net property, plant and equipment into two segments – Inside United States and Outside United States. Rather more information is provided by the Japanese company Honda Motor, as illustrated in Table 19. 2. This company discloses external sales, internal sales, operating income and segment assets for its five geographic segments. If we instead look at the I-J company, Avoidance, in Table 19. 3, we can see that it segments its operations into two lines of business which are further segmented into six and two geographical segments, respectively.

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Geographical Segment Reporting