)
While the government decided a few days ago to keep defence companies out of the purview of segment accounting, other Indian companies are feeling the heat as this accounting standard might make them reveal commercially sensitive information to the public quite soon.
"There is a concern among companies that segment disclosures according to Indian Accounting Standards (Ind-AS) 108 might lead to disclosure of certain information that is commercially sensitive," said Sai Venkateshwaran, partner and India head, accounting advisory services, at KPMG in India.
Till date, companies had been doing segment accounting according to Accounting Standard-17, following the Indian GAAP (generally accepted accounting principles). From the next financial year, every company with a net worth of more than Rs 500 crores will be doing segment reporting under Ind-AS 108, following the recently notified Ind-AS.
"Under the new framework, whatever way the management looks at the functioning of a company for decision making, it will have to explain segment performance in the same way in its accounts," said Venkateswaran.
The earlier basis of segment disclosures (under AS-17) was more driven by difference in risks and rewards between various components and the way the management looked at it was only one of the indicators considered in this evaluation.
"Ind-AS goes a step further, where you have to actually reveal the segment details based on information that is reviewed by the chief operating decision maker (CODM) of the company," said Sumit Seth, partner and International Financial Reporting Standards leader, PriceWaterhouse.
"The intent of Ind-AS 108 is that investors should be able to see the company's operations and performance through the eyes of the management. Indian companies are worried as this standard is new to them and they are preparing for Ind-AS adoption," added Seth.
Till date, many companies have been showing only one segment in their balance sheet. It wouldn't be so easy under the Ind-AS, as there are certain rules where you can aggregate two segments for reporting purposes, e.g. where they have certain similar economic characteristics. "But all this is secondary. The starting point is the information reviewed by the board/CODM should be first considered whether to be disclosed as segments in the financial statements," said Seth.
For market regulators in the US and Europe, this has been one of the most prominent areas where they have asked questions. For example, in December 2013, Barnes & Noble Inc, world renowned bookseller, was investigated by the US market regulatorm, the Securities and Exchange Commission (SEC), as to how the company split expenses among its devices and e-book segments.
"SEC reviews what the company is discussing in its Management Discussion & Analysis (MD&A); on its website; annual report; in their analyst calls, the quarterly calls etc. If the company has not disclosed proper segment information, it obtain reasons, including information submitted to the CODM/board of directors. The question which is often asked, if you can give such detailed information in the MD&A, company website etc, then shouldn't it also be disclosed as part of segment information?" said Seth.
Anywhere in the world, companies are mostly concerned with the potential competitive harm which they might face if they present detailed segment information. "This argument has been put up by companies many times. Regulators have pointed that if such information is relevant to the board and accounting rules require, then the information is relevant to the investor and it has to be disclosed," said Seth.
| A WORRIED LOT |
|
