Segmental reporting in Malaysia : the disclosure and perceived importance

Abstract

Segment reporting is not a new issue in the disclosure of corporate annual report, either locally or internationally. However, due to the rapid growth experienced by Malaysian companies as a result of globalization and diversified business activities, segment reporting is gaining importance. Since then, there have been many significant changes in the accounting regulation with regards to segment reporting, and apparently, segment information is very much needed in order to better assist stakeholders in making decisions. Hence, this study aims to identify the extents of segment disclosure of financial and non financial information in the corporate annual reports of Malaysian public listed companies. In addition, there is also the need to identify the perception of various stakeholders regarding the importance of financial and non financial information of segment information and to further identify the factors explaining the extents of segment disclosure based on proprietary cost theory. Data for this study were collected through questionnaire surveys, interviews and companies’ annual reports. Four years of annual reports were used from a sample of 93 Malaysian public listed companies’ and statistical analysis were conducted. The analysis results show that non financial information are more disclosed than financial information. The results also reveal that the introduction of new regulations in FRS 114 has led companies to produce better disclosures than under MASB 22 or previous regulations. The analysis on stakeholders’ perception reveals that there is no significant difference towards the importance of financial information among all stakeholders. Financial analysts were found to perceive non financial information as the most important, followed by the group of managers. Overall, non financial information is considered the most essential to all stakeholders in making decisions. Apparently, no significant relationship was found between all independent variables and financial segment disclosure except for number of segment. For the relationship between control variables and financial segment disclosure, only diffusion and return on asset are significant. In contrast, the relationship between independent variables and control variables with non financial segment disclosure are found to be all insignificant. As for interview sessions, results show that company did not highlight significantly the factors of proprietary cost in preparing the segment information disclosure, even though certain determined factors such as cost consideration and sensitivity lead indirectly toward proprietary cost theory. In conclusion, the term proprietary cost theory is still not well-known among preparers of annual report in Malaysian public listed companies. Overall, this study has provided helpful insights to users, preparers, accounting regulators in segment reporting especially in improving the financial reporting so that it is geared to meet stakeholders’ expectations.