Investors Tell the FASB: Segment Disclosures Need Improving
A recent Chartered Financial Analyst (CFA) Institute survey indicates that segmented reporting information is critical to investors, yet disclosures need improving dramatically.
Recent exchanges between investors and tech giants such as Amazon and Alphabet (aka Google) show the struggle: Amazon and Alphabet cloak the performance of important sections of their business such as Alexa, Amazon Prime and YouTube, lumping them in with their much larger businesses instead of breaking them down as segments. The Financial Accounting Standards Board (FASB) has recently put segment reporting on its standard-setting agenda, suggesting an appraisal of the existing expectations is approaching.
A new report by the CFA, “Segment Disclosures: Investor Perspectives” indicates that investors believe segment reporting needs improving and enforcing. In the global survey of CFA members – largely made up of portfolio managers and analysts – an overwhelming majority of 75% of respondents rated segment disclosures as very important, and 90.1% rated them as equally if not more important than company wide disclosures. However, satisfaction with segment disclosures was very low, at 13.4%, suggesting that a lot of work needs to be done.
The survey also found that respondents believed competitive harm to be overstated as an excuse to not improve segment disclosures, and that new technology could have, but hasn’t, substantially improved segment disclosures. With today’s reporting technologies there is substantial room for more transparency, with more detailed and informative disclosures achievable.
Segment reporting by companies in XBRL is an increasingly important factor for many countries. At XBRL International we would encourage regulators and companies alike to work to ensure that consistent reporting of segments (which are always company-specific) should be encouraged and as much as possible, enforced.