External Segment Reporting in the Republic of Serbia

Abstract

The purpose of the research in this paper is to examine the regulation and practices of external segment reporting in the Republic of Serbia. The importance of research stems from a great potential usefulness of segment information for investors and creditors. The analysis of regulation suggests that the Republic of Serbia has highquality and internationally recognized basis of external segment reporting -IFRS 8. However, there is a room for improvement of IFRS 8. The analysis of practices, conducted on a sample of 500 companies, shows that companies in the Republic of Serbia, in general, do not attach great importance to the disclosure of segment information in financial statements. The practices are quite miscellaneous, which is a consequence of the flexibility of IFRS 8, but also an incomplete compliance with IFRS 8. By applying statistical techniques we have examined whether the practices of external segment reporting are related to characteristics of companies, which makes the originality of the paper. We have found that financial institutions disclose more extensive quantitative segment information in relation to other companies in the Republic of Serbia, and that companies with higher assets disclose more extensive segment information. The research indicates that there is a significant room for improving the practices of external segment reporting in the Republic of Serbia. The research results may be useful for regulators of financial reporting and preparers and auditors of financial statements.

Los factores explicativos de la divulgación por segmentos en entidades no financieras cotizadas en los mercados europeos

“…Such aspects may lead entities to disclose more information by segment. With the exception of Lucchese and Di Carlo (2016), Leung and Verriest (2015), Lucchese and Di Carlo (2016), Obradović and Karapavlović (2016), Pardal (2008), Pardal and Morais (2011), Prather- Kinsey and Meek (2004) have found a positive relation, which is on the basis of H 1.1.…”

“…Among these explanatory factors that have a positive and significant relationship with the level of information disclosure by segment, the following stand out: size, the degree of internationalisation (for instance, by the presence in several capital markets or the weight of the foreign sales over the total sales), age and / or the reputation (including how many years they are listed in stock exchanges and / or the influence of the auditors, i.e., if a Big-4 accounting firm is represented by them), profitability, indebtedness, the level of capital dispersion and the barriers to entry (Alfaraih and Alanezi, 2011, Herrmann and Thomas, 1996, Leung and Verriest, 2015, Obradović and Karapavlović, 2016; Prather- Kinsey and Meek, 2004;Prencipe, 2004).…”

“…Concerning the countries assessed for those researches, the findings indicate that entities domiciled in France, the United Kingdom and Switzerland, operating in the financial or capital goods sector and audited by a Big-4/5, tend to disclose more information by segment (Alfaraih and Alanezi, 2011;Herrmann and Thomas, 1996;Obradović and Karapavlović, 2016;Prather-Kinsey and Meek, 2004). As regards the Portuguese case, it should also be emphasized the findings from Pardal (2008), which indicated a positive association between size and both the number of segments and the required items to be reported.…”

“…This information is known 8 by related entity-wide disclosures (REWD) within the IFRS 8 (paragraphs 31 to 34 of IFRS 8). According to some studies, most entities choose, under IFRS 8, to disclose products and / or services as their operating segments, to the detriment of geographical areas or a mix or matrix thereof, with the segments of geographical areas being disseminated in related entity-wide disclosures (Altintaş, 2010;Franzen and Weißenberger, 2015;Kang and Gray, 2013;Nichols et al, 2012;Obradović and Karapavlović, 2016;Pardal and Morais, 2011). This situation potentially reduces the level of information on geographical areas, since the information (items) provided in the operational segments is usually higher than in the REWD, which may limit the information provided to the users of the financial statements.…”

“…Some explanatory factors can then contribute to the different levels of disclosure of information by segments observed in the entities. These elements may be related, in particular, to the characteristics of the entities, where agency and / or ownership costs play a parallel role in the explanation of the relations verified (Alfaraih and Alanezi, 2011, Bugeja et al, 2015, Herrmann and Thomas, 1996, Leung and Verriest, 2015, Lucchese and Di Carlo, 2016, Obradović and Karapavlović, 2016, Pardal, 2008, Pardal and Morais, 2011, Prater-Kinsey and Meek, 2004, Prencipe, 2004.…”