FASB issues ED on segment reporting.

The Financial Accounting Standards Board has published a proposed statement that would change the way public companies report disaggregated information. The exposure draft, Reporting Disaggregated Information about a Business Enterprise, would require companies to report financial information about operating segments in the form that it is used internally for evaluating segment performance and determining resource allocation. The statement would not apply to nonpublic companies or not-for-profit organizations. (The International Accounting Standards Committee has issued its own ED. See "IASC Issues Segment Reporting Exposure Draft," J of A, Mar. 96, page 18.)

Edmund L. Jenkins, partner of Arthur Andersen and chair of the American Institute of CPAs special committee on financial reporting, was enthusiastic about the change, saying financial report users have long argued that better segment information was needed. "Investors make their decisions based on whether they think the rewards outweigh the risks," said Jenkins. "Better segment information would make it easier to assess the risks, resulting in the best allocation of capital."

Jenkins said the FASB proposal would place the same information top management uses in the financial report. "The ED proposes reporting information only to the extent that it is used to manage the business, not the arbitrary allocations that currently are required under FASB Statement no. 14, Financial Reporting for Segments of a Business Enterprise."

The statement would require reporting segment profit or loss, certain specific revenue and expense items and segment assets and liabilities. Public companies would have to reconcile total segment revenues and report information about the revenues derived from products or services of each operating segment and about certain countries in which the operating segments earn revenues and hold assets, regardless of whether that information is used in making operating decisions.

The proposal could raise questions among businesses. "There is concern in the business community about the disclosure of competitive information" said Jenkins, noting that the exposure draft did not include a recommendation by the AICPA special committee that would allow companies to withhold certain information if they could prove it would put them in a significant competitive disadvantage.

The exposure draft also would require that public companies report descriptive information about the way the operating segments were determined, as well as the changes in the measurement of segment information from period to period.

The proposed statement would be effective for financial statements for periods beginning after December 15, 1996. Comments are due by June 30, 1996. One copy of the proposal is available without charge until that date from the FASB Order Department, 401 Merritt 7, P.O. Box 5116, Norwalk, Connecticut 06856-5116; [phone], ext. 555.