On the Relevance and Comparability of Segmental Data

The recent adoption in the USA and Canada of the management approach to identify reportable segments places relevance of the disclosed segmental data as the overriding concern over comparability. This study investigates whether relevance and comparability can be simultaneously achieved in segmental disclosure. A series of tests is conducted where the comparability of consolidated and segment results with industry benchmarks are reported within a relevance framework where, for a single enterprise, segmental data either explains or confounds consolidated performance. The data set is drawn from the UK, a jurisdiction which explicitly allows directors discretion in identifying reportable segments.For half of the sample companies the simultaneous achievement of relevance and comparability is not found. In addition, for a sizeable minority of companies neither relevance nor comparability can be detected. The results of a series of tests indicate that this lack of relevance and comparability is not explained by dominant industry effects, internal accounting conventions nor a portfolio effect. However, the results are consistent with this group of companies having adopted the management approach to segment identification and reporting. The implication being that an analysis of the entity's past performance and an assessment of its future prospects may be jeopardised when the management approach is followed