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Virendra Verma
Dinesh Narayanan

MUMBAI, Feb. 2

THIS results season, companies had something more to show than the regular numbers. They revealed the risk-revenue profiles of their individual lines of business separately, a disclosure that is of vital interest to the investing public and other stakeholders as well.

The introduction of mandatory segment reporting has added a little more transparency to companies' accounts. As per the Institute of Chartered Accountant of India (ICAI) guidelines for segment reporting, a company has to disclose the revenue and profits of each segment that contributes 10 per cent of operating profit or revenues or if 10 per cent of the capital is employed in a particular segment.

Those in the accounting and finance profession say that even though it is the first time, reporting by most companies has been by and large satisfactory and as per the guideline except for some minor issues.

Non-disclosure of capital employed and unallocated expenses, analysts said, were the few creases in an otherwise smooth reporting.

According to Mr Ravimohan, Managing Director, Crisil, there is some concern regarding the unallocated expenses. Since it is not allocated specifically to each segment and appears as a block, the number remains a bit opaque.

Overall the presentation of segment reporting by most of the companies is satisfactory, but some of the companies have not complied with capital employed by each business segment, said Mr Nilesh Vikamsey, Partner of Khimji Kunverji &Co, a chartered accountancy firm.

Mr Vikamsey feels that this could be due to the complexity of collecting details of the capital employed by each segment. However, he feels that it is the beginning and "as we move ahead, more disclosures would be made by companies."

Mr Ravimohan echoes similar views. "Even we, in the analytical world, are still trying to understand it. It will get fine-tuned over a period of time. Some glitches are bound to happen in the initial days. The basic idea is to determine the revenues and profits of each line of business a company is engaged in," the Crisil chief said.

Disclosure norms have always been viewed with a certain amount of wariness. "When segment reporting was introduced in the US about four years ago, it had raked up quite a bit of controversy and had even got postponed," said Mr Kaushik Dutta, Partner, Head of Global Capital Markets Group at PricewaterhouseCoopers.

Mr Dutta said there would be some reluctance on the part of companies, as segment reporting requires disclosure of certain critical information. Mr Ravimohan concurred.

Mr Dutta said segment reporting reveals how the chief operating decision-maker actually runs the company and it may be sensitive in the context of competition.

He said another problem that could arise is that some companies may not practice segregation in terms of the financial system that actually supports the business. In such cases it would be difficult to match the risk and revenue profiles of different lines of business and hence determine the segments. "In fact, US companies show a lot less segments," he said.

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