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The Concept of Segmental Financial Reporting

Segmental financial reporting applies to multinational organizations that maintain one or more subsidiaries or branches in different geographical locations and with divergent operations. This paper, thus, focuses on the basic concept underlying the preparation and presentation of financial statements that are of great help the users. Accordingly, the aims, scope and applicability of the disclosure requirements of companies and allied matters legislations are examined. Other areas that are equally examined and discussed are: the concomitant problems that are encountered in the course of producing financial reports for the diversified or multinational companies, the treatment of internal sales and inter-segmental or common costs such as issues of allocation problems, the determination of reportable segment, and the contrast between formal financial statements with informal commentaries as a means of conveying financial. Furthermore, the disclosure requirements of SSAP 25 (Statement of Standard Accounting Practice No. 25), FRS 3 (Financial Reporting Standard No. 3) and companies and allied matters legislations are also highlighted. The paper concludes that users of financial statements need to be abreast with the current or latest practices and operations of these multinationals. Thus, the preparation and presentation of these financial statements should be done in such a way that would give a true and fair view of the company. Again, the reporting entities should disclose the geographical segmentation of turnover by origin; and to the third parties, the disclosure should be by destination. The paper recommends the harmonization of SSAP 25 and FRS 3 as a means of shading more light on the area of interpretation and disclosure practices.