FASB Rule Calls for Data on All Sectors of a Firm
Companies with diversified operations will have to start providing quarterly information for each business segment under a new Financial Accounting Standards Board rule announced this week.
The measure is intended to give investors more information, said Tim Lucas, the board’s director of research and technical activities. “The larger and more diversified a company is, the more interesting the segment information is going to be, but it will affect all public companies.”
For the record:
12:00 a.m. July 4, 1997 For the Record
Los Angeles Times Friday July 4, 1997 Home Edition Business Part D Page 3 Financial Desk 2 inches; 42 words Type of Material: Correction
Accounting rules--A Bloomberg News brief published Wednesday gave an incorrect effective date for new Financial Accounting Standards Board rules on providing information on diversified operations of public companies. The new rule will take effect for fiscal years beginning after Dec. 15, 1997.
The FASB said its latest rule will take effect for quarterly and annual reports on fiscal years ending after Dec. 15.
The board began work on the rule about five years ago. It will replace one adopted in the mid-1970s that let companies report results based on broad descriptions of product and service lines.
“IBM, until very recently, said they were in the information systems business and didn’t give any segment breakdown,” Lucas said. “We thought they could be more informative than that.”
Under the new standard, a company such as IBM will be required to report on personal computers, mainframes or consulting units separately. Companies will be encouraged to limit the number of segments to 10, Lucas said.
A company’s structure will determine segments that must be reported. The FASB defines segments as “components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker.”
A company’s structure may also mean that its segments are defined by geography rather than by product or service, the FASB said.
Companies initially objected to the rule, saying it could prove costly or force them to disclose information that would help rivals. The FASB said that for companies most vulnerable to the requirements, it will allow easier segment combination.
It also said the reporting requirement won’t create work for accountants because it only requires disclosure of results being used internally.
“You’ve inevitably got some kind of breakdown that you use to measure performance,” Lucas said. “There shouldn’t be any great additional cost involved.”
