Question 1

The major problem for an auditor of segment information:
A) is that 50 percent of sales is not always sold externally.
B) is that sales and profits are given by line of business, but sales only for geographic segments.
C) is segment identification
D) is that profits are given by geographic area but not line of business.

Accepted Answer

Segment identification is the major problem for an auditor of segment information because it requires the entity to properly identify and report its operating segments in accordance with the applicable accounting standard. This process can be complex and subjective, and if segments are not properly identified, the segment information provided may be inaccurate or misleading. The other options (A, B, D) are not the major problem for an auditor of segment information. Option A relates to the issue of intercompany transactions or transfers, which can be a challenge in segment reporting, but it is not the major problem. Option B is incorrect because profit information can be provided for both line of business and geographic segments, depending on the entity's reporting practices. Option D is also incorrect because sales and profits can be provided for both geographic and line of business segments, depending on the entity's reporting practices.

Question 2

The IASB's segment reporting standard IAS 14
A) gives management more discretion to identify geographic segments.
B) has primary segment which has higher disclosure requirement.
C) prohibits a matrix approach.
D) restricts the criteria for identifying segments to assessing "risks and returns".

Accepted Answer

IAS 14 requires disclosure of information by segment, with the primary segment being the segment with the higher disclosure requirement. This may be based on factors such as the source of revenue or cost, or the nature of products/services offered. The standard does allow for some discretion in identifying segments, but this should be based on internal reporting used by management, and should not result in excessive aggregation or omission of information. The standard does not prohibit a matrix approach, but does require additional disclosures in such cases. The criteria for identifying segments include factors such as the nature of the products or services, the geographical location, the regulatory environment, and the internal reporting. The assessment of risks and returns can also be a factor, but is not the only criterion used.

Question 3

A major difference between U.S. segment disclosures and those of other countries is that
A) U.S. companies tend to disclose more segments on average than do U.K. companies.
B) U.K. companies have several different sources of standards, whereas U.S. companies only have to worry about the FASB.
C) U.K. company law gives significant direction to companies on establishing segments, whereas the FASB gives no discretion to management on the establishment of segments.
D) U.S. companies have to report geographic sales by source and destination, whereas British companies are only allowed to report geographic sales by destination.

Accepted Answer

The answer of A major difference between U.S. segment disclosures...

Question 4

The European Union requires the following segment information:
A) sales and profits by line of business only.
B) sales and profits by line of business, but sales only for geographic segments.
C) sales by line of business and geographic area.
D) profits by geographic area but not line of business.

Accepted Answer

The European Union requires segment information on both line of business and geographic area, specifically sales by both. This allows for a more comprehensive understanding of the operations and performance of the company in different markets. The requirement for profits by geographic area is not necessary, as profits can be calculated based on the individual line of business financial statements within each geographic segment.

Question 5

The dual-yardstick proposal for segment disclosures
A) suggests that segments be established consistent with the company's organizational structure.
B) suggests that industry and country groupings be related to each other rather than an external standard.
C) requires geographic segmentation along country lines.
D) requires that geographic and industry data be combined together in a matrix reporting format.

Accepted Answer

The dual-yardstick proposal suggests that segments should be established consistent with the company's organizational structure, rather than being limited to geographic or industry groupings.

Question 6

According to the British approach to segment disclosures,
A) the Companies Act requires line of business sales but not geographic sales.
B) there is significant guidance as to what is material or what a reportable segment is.
C) the London Stock Exchange requires that firms provide geographic segments by country.
D) SSAP 25 requires geographic segments by source and destination.

Accepted Answer

The answer of According to the British approach to segment...

Question 7

The major argument against segment disclosure is that
A) data collection costs are high
B) that competitors will take advantage of the data
C) earnings conservatism will be affected
D) in some cases it may be inappropriate and misleading

Accepted Answer

In some cases, segment disclosure may be inappropriate and misleading to investors or stakeholders, leading to incorrect decision-making. Factors such as the size and significance of the segment, similarity or differences in products or services, and the specific nature of operations need to be considered before disclosing segment information. Therefore, the argument against segment disclosure is that in some cases, it may be inappropriate and misleading.

Question 8

MNEs often make the argument against segment disclosure that
A) economic efficiency will result
B) they will be put at a competitive disadvantage
C) there will be an affect on global comparative advantage
D) turnover rates will decrease

Accepted Answer

MNEs often argue that segment disclosure will put them at a competitive disadvantage because their competitors will have access to sensitive information about their operations and strategies. This can give their competitors an advantage in the market, which may harm the MNE's profitability and market share.

Question 9

US SFAS 131 reportable segments may be reported on
I. Accounting-based risk measures formed from line of businesses
II. Accounting-based risk measures formed from geographical areas
III. A combination of I and II
A) I only
B) II only
C) I and II
D) I, II and III

Accepted Answer

US SFAS 131 allows for reportable segments to be identified based on different sets of factors, including both line of business and geographical areas. It also permits a combination of these factors, hence all three options are correct.

Question 10

US SFAS 131
A) is very similar to the IAS 14
B) was created ten years before the IAS 14
C) concerns mergers and acquisitions
D) does not require sales information by segments

Accepted Answer

US SFAS 131 and IAS 14 both deal with segment reporting, but they have different approaches to how this information is disclosed. SFAS 131 focuses on reporting from the "management perspective," meaning it requires disclosure of financial information that is reviewed by the chief operating decision maker, which can lead to differences in what is reported compared to IAS 14.

Question 11

Most corporations do not provide segment reponting
A) for LOB information separately
B) for LOB information in matrix form
C) of sales data
D) identified by SIC

Accepted Answer

The answer of Most corporations do not provide segment reponting
A)...

Question 12

A problem with segment disclosure is that
A) IAS 14 has been rejected by MNEs
B) there are too many segments
C) segment reporting is only within the UK scope of the audit
D) management will be disclosing its own view of segments with significant differences in risk and return

Accepted Answer

The problem with segment disclosure is that management will be disclosing its own view of segments with significant differences in risk and return. This can lead to a lack of comparability and transparency in financial reporting. It is important for auditors to critically evaluate management's segment disclosure and ensure that it is in compliance with accounting standards and accurately reflects the company's business activities.

Question 13

From a competitive standpoint, segment reporting
A) is closer to a level playing field for single industry or single country firms.
B) does not create problems since most countries have similar reporting requirements.
C) creates a real cost of compiling, processing and disseminating information.
D) requires the disclosure of business dealings with major competitors.

Accepted Answer

The answer of From a competitive standpoint, segment reporting
A) is...

Question 14

According to U.S. and British companies, narrowly-defined line of business and geographic segments are
A) a cost of preparation but not a cost of competitive disadvantage.
B) difficult to determine because of their highly aggregated organizational structures.
C) easy to determine, because they only have to report sales data.
D) a competitive disadvantage cost since not everyone in the world has to account for segments the same way.

Accepted Answer

Narrowly-defined line of business and geographic segments can be seen as a competitive disadvantage because they require detailed reporting that is not uniformly mandated across all jurisdictions. This inconsistency in reporting requirements can put companies at a disadvantage compared to those in countries with less stringent requirements.

Question 15

The IASB's segment reporting standard IAS 14
A) gives management more discretion to identify geographic segments.
B) bases its requirements on the company's organization structure and internal reporting system.
C) contradicts proposals for reform issued by the FASB.
D) restricts the criteria for identifying segments to assessing "risks and returns".

Accepted Answer

IAS 14 requires companies to report segment information based on its organization structure and internal reporting system. It provides specific criteria for identifying reportable segments, such as aspects of the business that are subject to risks and returns that are different from those of other segments. It does not contradict proposals for reform issued by the FASB, nor does it give management more discretion to identify geographic segments.

Question 16

A major argument against segment disclosure is that
A) gross margins will fall
B) transfer pricing activity will increase
C) in some cases it may be misleading
D) MNEs will have to do more mergers

Accepted Answer

The major argument against segment disclosure is that in some cases it may be misleading. This can be due to factors such as differences in accounting policies or inconsistent allocation of expenses among segments. Critics argue that this can result in distorted financial statements that do not accurately represent the overall performance of the company.

Question 17

Which of the following is not a major problem for segment reporting?
A) There are problems with verification of information.
B) There are problems with segment identification.
C) The greater the disaggregation, the more likely the need to allocate common costs, which could distort profits.
D) U.S. firms do not provide much information about their segments.

Accepted Answer

The statement "U.S. firms do not provide much information about their segments" is not a major problem for segment reporting. However, the other options listed are major problems that companies can face when reporting segment information.

Question 18

Which of the following is true concerning segment disclosures?
A) The European Union requires sales but not profit data by segments.
B) Forecasts based on consolidated data are more accurate than those based on segmented data due to intercompany transfers.
C) The U.S. requires extensive social disclosures of its segmented data.
D) The British require segment sales based on source but not destination.

Accepted Answer

The European Union requires disclosure of both sales and profit data by segments.

Answer: B 
 Forecasts based on segmented data are typically considered more accurate as they allow for better understanding of performance and factors impacting it on a granular level. Intercompany transfers can be accounted for and adjusted for in segment reporting.

Answer: C 
 The U.S. requires disclosure of financial and descriptive information about a company's reportable segments, but does not require extensive social disclosures.

Answer: D 
 The British require segment sales to be reported based on both source and destination.

Question 19

Segment disclosure should not be expensive because of
A) worldwide business activity
B) stock market analysts
C) resultant lower leverage
D) computer systems

Accepted Answer

Segment disclosure can be easily achieved through the use of computer systems, making it less expensive to implement. This is because technology enables companies to electronically track financial information by product line, geographic area, or other operating segment without requiring significant additional resources. Therefore, option D is the best choice.

Question 20

Eliminations are
A) are a necessary part of segment reporting
B) only required in consolidations
C) not required in segment reporting
D) are being considered in an IASC proposal

Accepted Answer

The answer of Eliminations are
A) are a necessary part of...

Quiz 9: International Segment Reporting

The major problem for an auditor of segment information:

The IASB's segment reporting standard IAS 14

A major difference between U.S. segment disclosures and those of other countries is that

The European Union requires the following segment information:

The dual-yardstick proposal for segment disclosures

According to the British approach to segment disclosures,

The major argument against segment disclosure is that

MNEs often make the argument against segment disclosure that

US SFAS 131 reportable segments may be reported on I. Accounting-based risk measures formed from line of businesses II. Accounting-based risk measures formed from geographical areas III. A combination of I and II

US SFAS 131

Most corporations do not provide segment reponting

A problem with segment disclosure is that

From a competitive standpoint, segment reporting

According to U.S. and British companies, narrowly-defined line of business and geographic segments are

The IASB's segment reporting standard IAS 14

A major argument against segment disclosure is that

Which of the following is not a major problem for segment reporting?

Which of the following is true concerning segment disclosures?

Segment disclosure should not be expensive because of

Eliminations are