Segment Reporting VS Managerial Accounting: Introduction

Our fifth week in ACC 541 opened with a teaser question that forced the students to step back and think conceptually about segment reporting:



"Most financial statements represent summary data. Typically when you think of financial accounting you think more in terms of summary data. Is segment reporting similar or different from managerial accounting?"



Semantics aside, segment reporting and managerial accounting are much the same. In delineating operating segments, SFAS 131 states that "Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance" [italics added for emphasis] (FASB, 1997). The "chief operating decision maker" sounds an awful lot like a manager, does it not? SFAS 131 goes on to state: "Generally, financial information is required to be reported on the basis that it is used internally for evaluating segment performance and deciding how to allocate resources to segments" (FASB). The "basis that is used internally" could really mean little else other than managerial accounting. According to Managerialaccounting.org, "Managerial accounting is concerned with providing information to managers- that is, to those who are inside an organization and who direct and control its operations" (Geense, 2005) - or, in other words, the "chief operating decision maker."



Finally, from the FASB itself in is stated objective within the very text of SFAS 131: "The method the Board chose for determining what information to report is referred to as the management approach. The management approach is based on the way that management organizes the segments within the enterprise for making operating decisions and assessing performance" (FASB). According to Investopedia, "managerial accounting information is aimed at helping managers within the organization make decisions" ("Managerial Accounting," 2008). Hey, did I hear an echo? Nope - that was just the sound of the FASB saying that management information is relevant to outside users of financial statements as well, something we knew all along!

References

FASB. (June 1997). Statement of financial accounting standards no. 131 (as amended): Disclosures about segments of an enterprise and related information. Retrieved from Wiley's Accounting Research Manager database.



Geense, M. (2005). Managerial accounting. Retrieved January 22, 2009, from the Managerialaccounting.org website: http://www.managerialaccounting.org/.



Managerial accounting. (n.d.). Retrieved January 22, 2009, from the Investopedia website: http://www.investopedia.com/terms/m/managerialaccounting.asp.