Question

What are the costs and benefits of a corporation, such as Walmart, reporting detailed segment disclosures in addition to their required consolidated financial statements?

Answer 1

The benefits for a corporation like Walmart out of detailed segment wise disclosure and reporting are as follows:

1. A corporation like Walmart which have only one major business segment (retail business) chooses geographical segment as primary reporting segment and hence segment reporting helps the company and the investors to understand better, the areas which performed good & contributed maximum to the profits and the areas where operations are to be made more effective to increase profitablility.

2. Segment reporting enables better analysis of risk and returns of different locations of multi locations enterprise like Walmart thereby enabling the company to make informed decision on which stores are to be developed and which stores are to be closed.

3. Segment reporting provides more relevant information thereby enabling the investor to take investment and credit decision. The data in financial statements is disseminated across different locations which exposes the efficiency of the decision making of the firm and its management.

4. Segment reporting achieves the overall objective of true & fair view of the financial statements.

Costs of corporation like Walmart for segment reporting

1. The gathering of additional and detailed segmant wise information will certainly increase the operating cost incurred for collection of data which is one of the disadvantages of the segment reporting.

2. A corporation like Walmart will generally have large no. of internal transactions across different branches. The pricing of these internal transactions is a challenge and time consuming to the corporation like Walmart since there are lot of methods for pricing the internal transactions and each method give different result. Also which method suits the best to the corporation is also matter of perception

3. Further the allocation of common costs makes the work extremely difficult since there are multiple methods available. Due to these methods the comparability of the financial statements will be reduced as cross company comparision of financial statements of companies which adopts different methods may lead to confusions