Views on improving the integrity of global capital markets
30 August 2018

Investors to the Financial Accounting Standards Board: Segment Disclosures Need Improving

Posted In: Auditors

Segment reporting information is critical to investors. Despite the US GAAP standard on segment reporting being over 20 years old, the disclosures it produces remain challenging for investors who use the information and regulators who enforce the guidance. Recent media attention related to companies such as Alphabet Inc. and, Inc. (see Bloomberg’s article, “Amazon Takes Secrecy to a Comic Extreme” and MarketWatch’s article, “SEC: Tell Us More About All This Money; Amazon and Google: Nope”) highlights opportunities for improvement. The Financial Accounting Standards Board (FASB) has recently moved its project on Accounting Standards Codification Topic 280, “Segment Reporting” from its research to its standard-setting agenda. Some might speculate, the inability of the SEC to enforce the segment standard more effectively on some of the largest corporations in the U.S. market may have nudged FASB to make improving segment reporting a higher priority.

In a new report, “Segment Disclosures: Investor Perspectives,” CFA Institute publishes the results of a survey regarding CFA Institute members’ perceptions about the current state of segment disclosures and improvements they believe would be important. CFA Institute will use the survey and the resulting report to provide input to the FASB on the segment reporting project. Segment disclosure is of critical importance to our members and we believe it is important to provide investor input to the FASB before it issues any discussion paper or exposure document. Because similar disclosure requirements should be maintained globally, we are also providing the report to the International Accounting Standards Board (IASB). We believe it is essential for the IASB to engage in an active project to review International Financial Reporting Standard 8 (IFRS 8), “Operating Segments,” and ensure global consistency with respect to the production of segment results.


Our report compiles and analyzes over 50 data points from a global survey of our members who are portfolio managers and analysts. The survey was quite technical, longer, and more complex than we would normally ask our members to complete, and required an average of nearly 25 minutes to complete. Our appreciation goes out to those members who took the time to complete it, thus demonstrating their commitment to helping us improve segment disclosures on behalf of investors.

Our objective was to obtain investors’ and analysts’ general sentiments on segment disclosures, including the importance of, and their satisfaction with, such disclosures. Overall, respondents rated segment disclosures as very important (75%) to their analysis and equally if not more important (90.1%) than entity-wide disclosures. Their satisfaction (13.4%) with segment disclosures is substantially less than their rating of the importance of those disclosures. The implication for standard setters is that there is work to be done to meet investor needs as it relate to segment disclosures.

In the survey, we also queried our members on several other broad topics and found respondents believed:

  • Critical audit matters—Segments should be disclosed as a critical audit matter in the new auditor’s report.
  • Competitive harm—Competitive harm is overstated as a reason not to improve segment disclosures.
  • Technology—Technological improvements should, but have not, substantially improved segment disclosures.
  • Enforcement—Regulators do not seem to effectively enforce segment disclosure requirements, but they did not feel as strongly that changing segments—at least infrequently—was a red flag.
  • Consistency of discussion results with segment disclosuresDiscussion of results and other information provided in other public venues, including non-GAAP measures, were not necessarily consistent with or reconcilable to segment results.
  • PresentationThere was substantial room for enhancing the presentation of the balance sheet and income statement by segment, including providing more detail and reconciling amounts to the entity-wide income statement and balance sheet.
  • Disclosures—Providing additional cash flow disclosures was the most important disclosure area to investors, followed by better information on liabilities, assets, and total assets.

The survey also included questions directly linked to the principles to be applied by preparers in crafting disclosures such that investor input could be directly connected to the FASB’s work on the standard. Our analysis of the responses showed the following:

  • Management approach—There was support for retaining the management approach.
  • Definition of an operating segment—
    1. opportunities for improving the definition of the chief operating decision maker, which would likely result in a lower level or broader level of decision making within the organization;
    2. support for broadening whether revenues and/or expenses are necessary for defining an operating segment and whether growth areas should be specifically highlighted; and
    3. discrete financial information could include information provided to analysts and non-GAAP measures.
  • Aggregation and disaggregationThe terms aggregation and disaggregation are used as terms of art in the application of segment reporting guidance and then used more broadly or traditionally in gauging sentiment regarding sufficiency of detail with investors. As would be expected, investors broadly sought greater disaggregation. When used as terms of art in applying the accounting standard, investors (1) supported aggregation of operating segments into reportable segments; (2) preferred the application of quantitative criteria before the application of qualitative criteria; and (3) sought refinements in the definition of qualitative criteria, as they see opportunities for overly liberal application of those criteria.

The survey revealed regional variations in the responses to each of the questions. Broadly, respondents in the Americas region were closest to the overall averages, while those in the Asia-Pacific region more strongly favored improvements—particularly related to disaggregation and limiting management choice. Those in the Europe, Middle East, and Africa region less strongly favored limiting management choice and were less strong—but most times still in a majority—in making improvements to the disclosures in areas such as disaggregation. That said, the regional results should be evaluated on a question-by-question basis.

The report Segment Disclosures: Investor Perspectives presents a full analysis of the results.

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Photo Credit: ©Getty Images/adrian825

About the Author(s)
Sandy Peters, CPA, CFA

Sandy Peters, CFA, is head of financial reporting policy and serves as spokesperson for CFA Institute to key financial reporting standard setters including the IASB, FASB, and the US Securities and Exchange Commission. She holds the Certified Public Accountant (CPA) designation.

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