Segment Reporting and IAS 14: Toward a Theory

This paper aims to focus on the contribution made by segment reporting to the improvement of thereporting potential of the financial statement and of internal reporting used for decision making andfor management control. This study takes its cue from the fundamental principles laid down by IAS 14 and reaches the conclusion that external segment reporting through the financial statement, in the same way asinternal segment reporting, must be considered as a subsystem of overall reporting used by management for decision making. Segment reporting, therefore, is achieved by attributingaccounting values to segments corresponding to centres of responsibility and, through subsequent aggregations, to reportable business segments and/or geographical segments reportable tostakeholders and to management.By overcoming the distinction between internal and external segment reporting, the reporting process is simplified and the costs of producing external reports are reduced, there is a reduction in the asymmetry between the level of information available to management and that available tostakeholders and, consequently, the entity can exploit the advantages deriving from increased stakeholder confidence: increased revenue from sales to customer imprese and reduced cost of venture capital, of financing and of the other resources contributed by stakeholders. If the entiy uses internal segment reporting to carry out external business reporting and/or geographical reporting, moreover, management has the necessary information during theaccounting period to exercise control of segment performance and to make choices aimed at improving results and reducing segment risk.