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FASB issues new segment expense disclosure rules

On November 27, 2023, the Financial Accounting Standards Board (FASB) issued updated accounting rules on segment reporting. The guidance concludes several years of discussions aimed at providing investors with better information about a company’s business unit costs from the viewpoint of management. The rules will take effect next year for public companies.

Existing rules

The term “segment reporting” refers to the reporting of the operating units of a company in its financial statements. Segment reporting is required for public companies but not for private entities.

Under U.S. Generally Accepted Accounting Principles (GAAP), companies must report a segment if it has at least:

  • 10% of the company’s revenue,
  • 10% of the company’s profit or loss, or
  • 10% of the combined assets of the company.

A disclosure enhancement project was initiated in 2018 in response to calls from investors for greater transparency about profits and losses, future cash flows and business unit operations.

Updated rules

Under Accounting Standards Update (ASU) No. 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures, companies will be required to disclose segment expense information based on what the chief operating decision maker (CODM) deems to be material. These disclosures must be made both quarterly and annually. The updated guidance introduces a disclosure principle based on the significant segment expense categories regularly provided to the CODM and included in the reported measure of segment profit or loss.

The guidance will allow companies to report multiple measures of a segment’s profit or loss. If more than one measure is used, a company could disclose any of those measures as long as at least one is determined in accordance with the measurement principles most consistent with those used in the consolidated financial statements.

In addition, companies also will need to disclose:

  • The title or committee that’s deemed to be the CODM. This could be an individual or group.
  • The nature of the expense information the CODM uses to manage segment operations. For example, the company may disclose that the CODM uses consolidated or budgeted expense information. This change applies only to public companies that don’t regularly provide segment expenses to the CODM.

ASU 2023-07 also introduces requirements for public companies that only have one reportable segment. These entities must provide the same new disclosures that are required for companies with multiple segments, plus all the existing segment disclosures.

These additions significantly expand what’s currently required under Topic 280. FASB Chair Richard Jones has called this proposal the “single largest improvement to segment reporting” in over two decades. He believes that the updated guidance “will improve financial reporting by providing additional information about a public company’s significant segment expenses and more timely and detailed segment information reporting throughout the fiscal period.”

Coming soon

Public companies must apply the changes retrospectively to fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. Contact us for help implementing the updated guidance.

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