Segmentation (economics)

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In microeconomics, segmentation is the division of an entire area into several sub-areas in order to create better market transparency . Mention should be made of segment reporting or market segmentation .

Concept and functions

Under Segment Information ( English segment Reporting ) or segment disclosure is in the external accounting supplementary publication of financial statements information broken down by economic activities (operating segments, such as market segments understood). With increasing diversification of a company, the information content of a summary or consolidated accounts falls because various industries and different regions , different growth rates , market trends , risk types and degrees of risk have.

The aggregation of inventory and success parameters of heterogeneous company areas not only leads to non-transparent global values, but also contradicting developments in the asset, financial and earnings position can compensate each other internally. The consequences are information deficits and distortions among the recipients of the annual financial statements. In contrast to consolidation, the segment reporting breaks down the data aggregated in individual or consolidated financial statements, e.g. B. by product lines, geographical areas or profit centers .

interested persons

Users of the annual financial statements pursue individual interests in information, although they all have a fundamental interest in the continued existence of the company and the fulfillment of their material expectations. The type and scope of segment reporting therefore depends on both the protection needs and the influence of a company's interest groups:

  • The group of investors , which includes active and potential shareholders as well as lenders (creditors), are particularly interested in business activities abroad and their effects on the risk and return of the company as a whole. The combination of company-specific data with externally available information allows a more precise estimate of the growth potential, the uncertainty of future cash flows and the capital value of the investment. In addition, the segment accounting can function as an effective control instrument for the shareholders as part of the accountability of corporate management.
  • Suppliers, customers, employees and other business partners ( stakeholders ) are likely to be less interested in the company as a whole than in the area of ​​the company that affects them most. With the help of the segment report, previous and future suppliers can make adjustments to their production and delivery programs or draw conclusions about future delivery options. Employees are empowered to assess the future of their jobs and the opportunities of various parts of the company.
  • Last but not least, segment reporting is important for the state and the public. Although there is usually no payment assessment function (for example for the purpose of corporate taxation), the economic contribution of corporate divisions to national locations can still be determined. From the public's point of view, every publication of information that leads to intensified competition increases economic efficiency and thus ultimately the prosperity of a society.

Theoretical and empirical reasons

Decision relevance

However, the information conveyed by aggregated financial statements is not sufficient for the decisions to be made by the financial statements users, as it does not reflect the actual economic conditions of individual segments. In this respect, the information instrument annual or consolidated financial statements alone does not suffice for the information interests or requirements recognized as being worthy of protection. The central task of external accounting is to provide all addressees with the information relevant to their economic decisions.

If objectifiable prognoses about the further development of a company, the assessment of success potentials and reliable conclusions about future cash flows are made possible by published data, then the decision is relevant. Only the disclosure of segmented data allows decision-makers to analyze the structure of the company's commitment in detail, derive specific risks from it and thus evaluate the probability of future cash inflows in terms of amount and time. Segment reporting as an additional information tool that closes the informational gap between financial reporting and corporate activities can therefore be relevant to decision-making, just like other financial data.

Empirical Findings and Effects

Segmented data are not only theoretically relevant for decision-making, they are also actually useful in practice. The accuracy of forecasts about the financial development of a company increases if segment information is used instead of aggregated data. Numerous empirical studies confirm this significantly; Other empirical research on the effect of segment disclosure has shown a further effect: a decrease in the beta factor , the price fluctuation of a share in relation to the change in the overall market. The segment reporting therefore also has a direct effect on a company's stock market valuation. Both the improved forecasting ability and the equity market effects benefit the publishing companies themselves, for example in the form of lower capital costs.

Development of internationally relevant standards

Financial Accounting Standards Boards and IFRS 8

Companies that apply IFRS and have to publish segment reporting in accordance with IFRS 8.2 are only allowed to carry out segment reporting in accordance with IAS 14 until the end of 2008. From January 1, 2009, IAS 14 (Segment Reporting) will be replaced by IFRS 8 (Operating Segments). In contrast to IAS 14, IFRS 8 now consistently follows the management approach, which is intended to present segment reporting to the reader from the perspective of management (based on internal reporting structure).

Financial Accounting Standards Boards and FAS 14 / SFAS 131 par. 4th

Already the forerunner of the US founded in 1973 FASB , the Accounting Principles Board (APB), recommended in 1967 the voluntary publication unspecified fixed segment information, but only the US Securities and Exchange Commission SEC demanded from 1969 specific segment information in the drawn up according to their rules statements. The FASB then dealt with segment reporting and in 1976 published FAS 14 “Financial Reporting for Segments of a Business Enterprise”. In the following year, the SEC again adapted its regulations to the now applicable FAS 14 in order to harmonize financial reporting. Currently, US listed companies SFAS 131 par. 4th

International Accounting Standards Board and IAS 14

Also founded in 1973, the IASB is a private association of the various national professional organizations of accountants . The aim is to improve and align accounting regulations on an international level by developing International Accounting Standards (IAS) and trying to enforce them worldwide. In 1981, IAS 14 “Reporting Financial Information by Segment” was passed, which now applies in the revised version IAS 14.3 (revised). In the meantime, IAS 14 has been replaced by IFRS 8, which is to be applied from January 1, 2009.

European and national regulations

With the 4th (1978) and the 7th EC Directive (1983), segment reporting has also found its way into the national (group) accounting law of the EU member states. While Great Britain and Ireland are characterized by the Anglo-Saxon accounting philosophy and have gone beyond the very rudimentary EC regulations with regard to segment disclosure, the other member states have limited themselves to the absolutely necessary requirements (breakdown of sales). According to Section 297 of the German Commercial Code (HGB), Germany grants the companies the right to choose, which allows the expansion of the consolidated financial statements to include segmentation reporting, but does not require it.

The DRSC, created in 1998, and the German Standardization Council (DSR) supported by it, as the responsible German standardization organization, passed the draft for the German Accounting Standard (DRS) 3 on December 20, 1999, which was published in the Federal Gazette on May 31, 2000 by the Federal Ministry of Justice ( 103, p. 10189 ff.) Was announced as "DRS 3 - Segment Reporting". Changes to this standard were made by DRÄS 1 (published in the Federal Gazette of July 2, 2004, 121a) and DRÄS 3 (published in the Federal Gazette of August 31, 2005, 164).

DRS 3 applies to all parent companies legally obliged to report on segments, including capital market-oriented parent companies. Other companies that voluntarily carry out segment reporting are required to observe DRS 3.

Disaggregation approaches

The segment-wise breakdown of aggregated data requires a prior arrangement (structuring) of the company activities, whereby the following disaggregation approaches are basically distinguished:

Sector segmentation

One starting point is the delimitation of areas of activity, e.g. B. goods-related (products, product groups, production facilities), organizational or corporate law (divisions, profit centers, subsidiaries) as well as industry-related (classification according to generally applicable criteria, e.g. economic statistics).

Regional segmentation

Another starting point is the disaggregation according to spatial aspects, i.e. usually geographical areas with similar economic, political and social conditions, e.g. B. sales market-oriented (place of sale, use or seat of customers) or production-related (company locations, production sites).

Combined segmentation

In addition to an isolated sectoral and regional breakdown, a combined, two-stage segmentation is also possible. This link is particularly useful when a company is run in the form of different profit centers or as a matrix organization, i.e. certain areas of activity operate within defined geographical areas.

The scope and subject of the segmentation

A total segmentation, in which all values ​​are completely assigned to the segments formed, is usually ruled out for cost reasons. Partial segmentation is useful, in which central balance sheet and performance indicators, but also other data (investments, number of employees) are broken down. The segment-wise attribution of common sizes (coding) and the treatment of internal company service interdependencies (transfer pricing) turn out to be problems of segmentation.

literature

Web links

Individual evidence

  1. Definition of segment reporting . Website of the Gabler Wirtschaftslexikon. Retrieved January 6, 2010.
  2. Segment reporting  ( page no longer available , search in web archivesInfo: The link was automatically marked as defective. Please check the link according to the instructions and then remove this notice. (PDF file; 636 kB). Plaut Consulting GmbH website. Retrieved January 6, 2010.@1@ 2Template: Dead Link / www.plaut.com  
  3. Segment reporting . Website tax links. Retrieved January 6, 2010.