Question

Washington—The Securities and Exchange Commission staff issued guidelines for companies grappling with the problem of dividing up their business into industry segments for their annual reports. An industry segment is defined by the Financial Accounting Standards Board as a part of an enterprise engaged in providing a product or service or a group of related products or services primarily to unaffiliated customers for a profit. Although conceding that the process is a “subjective task” that “to a considerable extent, depends on the judgment of management,” the SEC staff said companies should consider . . . various factors . . . to determine whether products and services should be grouped together or reported as segments.

Instructions

1. What does financial reporting for segments of a business enterprise involve?

Short answer

Financial reporting for segments of a business enterprise involves reporting financial information on a less-than-total enterprise basis.

Step-by-step solution

Meaning of Financial Reporting

Financial reporting refers to the collection of official and required communications that corporations must provide(balance sheet, income statement, prognosis, and so on). Companies listed on the stock exchange (at least the most important ones) must adhere to a quarterly release pace of financial data.

Explaining the involvement of official reporting for segments of a business enterprise.

Financial reporting for segments of a business entity involves the reporting of financial data on a basis other than that of the overall business enterprise. These parts can be divided into divisions, branches, or subsidiaries based on organizational lines.

Segmentation may be based on areas of economic activity such as company territories, product lines, type of services provided, markets, customer categories, or geographic location. A corporation may employ more than one of the above segmentation grounds in addition to these various unique definitions of segments of an enterprise.