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Why is segment reporting important in financial reporting?


Asked by Bishop Cox on Dec 10, 2021 FAQ



Segment reporting continues to be an important element of financial reporting for public companies. While the requirements of ASC 280, Segment Reporting, have been effective for several years, segment disclosures continue to be a frequent area of emphasis in SEC staff comment letters. In these reviews,
In this manner,
Segment reporting is intended to give information to investors and creditors regarding the financial results and position of the most important operating units of a company, which they can use as the basis for decisions related to the company.
Additionally, The Financial Accounting Standards Board (FASB) sets the accounting standards for business segment reporting. FASB Accounting Standards Codification (ASC) 280-10-10-1 requires that all segments of a company's business align with the company's reporting structure.
In addition,
IFRS 8 (‘the standard’) aligns the identification and reporting of operating segments with internal management reporting. Segment reporting under IFRS 8 should highlight the information and measures that management believes are important and are used to make key decisions.
Moreover,
There are some limitations on these segment reporting requirements. One is that a company should generally only detail up to 10 different segments in its annual report, even in the rare situation where more than 10 segments meet the qualifying limits. In this situation, the 10 largest segments overall should be listed.