Operating segments: improving disclosure from the bottom up

How is segment information used?

When talking to investors about reporting, two themes always dominate: the desire to understand if management is spending capital wisely; and the need to have a sound base of data to forecast with confidence.

Are segments aligned with the business model?

Both US GAAP and IFRS require segment reporting to reflect how management views the business – more precisely, it requires entities to report the information provided to and reviewed by the chief operating decision-maker (CODM) in making resource allocation and performance assessment decisions.

However, given the scope and scale of many global concerns, reporting every business unit separately could become a burdensome process. So, in practice, management sometimes exercise the right to ‘lump together’ operating units that are similar or related.