The Financial Accounting Standards Board released a final
The guidance comes in response to requests from investors and other capital allocators for more detailed information about segment expenses.
"The new segment reporting guidance is based on the FASB's extensive outreach with stakeholders, including investors, who indicated that enhanced disclosures about a public company's segment expenses would enable them to develop more decision-useful financial analyses," said FASB chair Richard Jones in a statement Monday. "It 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."
The amendments in the update mainly improve reportable segment disclosure requirements via enhanced disclosures about significant segment expenses. The major amendments require a public entity to disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision-maker, or CODM, and included within each reported measure of segment profit or loss.
Other provisions require a public entity to disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The "other segment items" category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss.
Public entities will also need to provide all the annual disclosures about a reportable segment's profit or loss and assets that are currently required by FASB Accounting Standards Codification Topic 280, "Segment Reporting," in interim periods.
The update also clarifies that if the chief operating decision-maker uses more than one measure of a segment's profit or loss in assessing segment performance and determining how to allocate resources, a public entity can report one or more of those additional measures of segment profit. But at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the principles used in measuring the corresponding amounts in the public entity's consolidated financial statements.
The update requires a public entity to disclose the title and position of the chief operating decision-maker and an explanation of how the CODM uses the reported measure or measures of segment profit or loss in assessing segment performance and deciding how to allocate resources.
In addition, the ASU requires a public entity to have a single reportable segment providing all the disclosures required by the amendments in the ASU and all existing segment disclosures in Topic 280.
The update applies to all public entities that are required to report segment information in accordance with Topic 280. All public entities will need to report segment information in accordance with the new guidance starting in annual periods starting after Dec. 15, 2023.
More information from more entities
"We actually completed redeliberations last quarter on this project," said FASB technical director Hillary Salo during a panel discussion at Financial Executives International's Current Financial Reporting Insights conference earlier this month. "In summary, entities are going to be required to provide information about a segment's significant expenses. They're going to have to provide segment information more frequently, and more entities are going to have to provide segment disclosures."
She explained the disclosures in more detail. "When we think about segment expenses and the new disclosures there, the guidance is going to require on both an annual and interim basis that entities provide disclosure associated with any segment expense that's regularly provided to the CODM, that's included within the measure of segment profit, and is significant," she added. "Those are really the criteria for the additional disclosures for significant segment expenses."
FASB decided that an entity is not required to reconcile segment expenses to consolidated expenses, but to ensure that segment footnote still works, entities are going to be required to disclose other segment items.
"These are really the expenses that are not regularly provided to the CODM or that are not significant, but are included in the measure of segment profit," said Salo. "Entities are also going to be required to disclose a description of the composition of other segment items for each of their reportable segments. Entities are also going to be required to provide disclosures about a segment's profit or loss in assets on an annual and interim basis. Currently, those disclosures are only required on an annual basis, so this is kind of the additional frequency that I was talking about."
FASB also decided that single-segment entities will be required to provide segment disclosures. "Segment disclosures were not explicitly required under Topic 280 for entities that had one reportable segment," said Salo. "The board did decide to require explicitly that single reportable segment entities are required to apply the segment guidance and that means the existing guidance that's in 280 as well as the new disclosures that will be coming out in this final guidance."
The guidance clarifies that more than one measure of segment profit or loss can be disclosed.
"In other words, in addition to the measure of profit or loss that's most consistent with the measurement principles under GAAP, an entity would not be precluded from reporting additional measures of segment profit or loss that are used by the CODM in assessing segment performance and in deciding how to allocate resources," said Salo. "However, if you do provide those additional measures, they are required to be reconciled back to the consolidated entities' income before taxes. And then lastly, given the importance of the CODM when we think about the segment disclosures, and applying the management approach, the board did decide that entities are going to be required to disclose the title and position of the CODM as well as an explanation of how the CODM uses the recorded measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. This guidance is going to have to be applied on a retrospective basis, and for calendar year-end companies it is going to be applicable for 2024 10-Ks and 2025 10Q-s."
During a press conference following the panel discussion at the FEI conference, Salo revealed that FASB expects to issue ASUs for income tax reporting and cryptocurrency assets. in December.
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