Question

The company also heard that they may have to report some of their business segments separately if they opt to incorporate. 1. Appraise one of the processes used to identify which segments would have to be reported separately. Provide examples to support your response. 2. How is this process effective in supporting transparency in financial reporting? Defend your response. 3. Provide suggestions to improve this process in an effort to sustain transparency. Defend your rationale.

Answer 1

1. Appraise one of the process used to identify which segments would have to be reported separately. Provide example to support your response.

Identifying business and geographical segments

An entity must look to its organisational structure and internal reporting system to identify reportable segments. In particular, IAS 14 presumes that segmentation in internal financial reports prepared for the board of directors and chief executive officer should normally determine segments for external financial reporting purposes. Only if internal segments are not along either product/service or geographical lines is further disaggregation appropriate. This process help determine and identify segments to be reported separately during consolidation of the financial statements as required by IAS 14, if segments are reportable it must be separately disclosed

2. How is this process effective in supporting transparency in financial reporting, Defend your response.

AS 14 presumes that segmentation in internal financial reports prepared for the board of directors and chief executive officer should normally determine segments for external financial reporting purposes. , hence help in supporting the transparency in financial reporting. Transparency in financial statements means everything is properly disclosed, easily understandable, clear, and user friendly. Segment reporting provides information about different business activities, more simply put, a breakdown of different business activities. Because analysts, investors, stakeholders, etc. need to be able to understand, evaluate, and monitor performance, it is import the financial reports are transparent.

3.Provide suggestions to improve this process in an effort to sustain transparency. Defend your rationale.

To improve this, companies can provide segment information that helps users make a better assessment of the earning capacity and financial position of the business as a whole. Providing information on foreign operations instead of only foreign sales will also contribute to sustaining transparency.