Problem:
DOES IBM REALLY HAVE ONLY ONE INDUSTRY SEGMENT?
Not all corporations have readily embraced segment reporting. All disclosure has a cost; gathering and monitoring information for each segment are not cheap. In addition, some companies fear that such data could be useful to their competitors. One solution is to define the company as having only one segment so that disaggregation is not required. With the very flexible guidelines established in SFAS 14 for identifying segments, many companies were able to avoid presenting segment information in this manner.
Consider IBM. As befits its size, the $63 billion (estimated 1989 sales) computer company is in several lines of business, including personal computers, mainframes, electronic mail systems and semiconductors (IBM's semiconductor facilities rank among the world's largest). How is each of these segments doing? That's hard to say. IBM reports figures for a grand total of one segment, called "information-processing systems, software, communications systems and other products and services."...
Does anybody care? They should. Says Eugene Glazer, technology analyst at Dean Witter Reynolds: "Investors need to know how a company is doing in each major business. Maybe one business is so dominant and earning such huge profits that it's masking errors in other businesses."11 To be fair, although under SFAS 14 IBM indicated that a single segment "represents more than 90 percent of consolidated revenue, operating profit, and identifiable assets," it nevertheless voluntarily disaggregated revenues "by classes of similar products or services within the information technology segment." However, data on operating profit, assets, depreciation, and capital expenditures were not similarly disaggregated.
Should the FASB have tightened up its rules with SFAS 131 on defining segments to ensure that all companies present appropriately disaggregated information? Why or why not?