Segment Reporting in the Banking Industry: Does It Meet the Criteria of the Conceptual Framework?

The development and promulgation of accounting standards in the private sector constitutes a continuing challenge for the accounting profession. The criticism that the Financial Accounting Standards Board (FASB) has adopted standards that are not conceptually based also continues unabated. Statement of Financial Accounting Standards (SFAS) 14 is used for disclosures in a segment of the banking industry. A review of these disclosures is conducted in an effort to: 1. determine if this conceptually based standard is being used with significant preparer discretion, 2. compare the segment disclosure of individual firms to SFAS 14 and to the guidelines of the conceptual framework expressed in Statement of Financial Accounting Concepts (SFAC) 2, and 3. assess whether the resulting disclosures accomplish the objectives of SFAC 2. The results of a study in this area suggest that the FASB is being challenged to determine whether comparability between firms is achievable when individual financial statement preparers have as much discretion as is allowed under SFAS 14.