How many segments is generally considered the practical limit for reporting?

In financial reporting, the concept of segment reporting arises from the need for companies to disclose information about the different parts of their business that provide financial statements users with insight into how different geographical areas or business units impact the overall financial health of the organization.

The practical limit for reporting segments is generally recognized to be 10. This number is suggested to strike a balance between providing adequate detail and maintaining clarity in financial reports. Beyond this threshold, the information may become overwhelming and less useful for stakeholders. With too many segments, the financial statements could become cluttered, making it difficult for interested parties to extract relevant information quickly. Thus, the guidance around the reporting of segments tends to indicate that 10 is a sensible upper limit for most entities, allowing them to provide meaningful information without overwhelming users of the financial statements.

While other numbers may serve technical aspects of segmentation, they tend not to be practical in ensuring clarity and usability of financial data.