The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to require public entities to disclose incremental segment information on both an annual and interim basis.
The amendments are intended to address requests from investors for more detailed information about a reportable segment’s expenses. The amendments apply to all public entities that are required to report segment information in accordance with Topic 280, Segment Reporting.
Background
Currently, Topic 280 requires that a public entity disclose a measure of profit or loss and a measure of total assets for each reportable segment unless the entity explains the reason for not disclosing a measure of total assets. The reported measures should be those that the chief operating decision maker (CODM) uses to make decisions about allocating resources to the segment and assessing its performance.
Topic 280 also requires other specified segment items and amounts—such as depreciation, amortization, and depletion expense—to be disclosed under certain circumstances.
Investors have observed that although information about a segment’s revenue and measure of profit or loss is disclosed in an entity’s financial statements, there generally is limited information disclosed about a segment’s expenses.
Feedback indicates additional expense information would help investors with:
- Assessing financial trends
- Performing precise financial modeling when forecasting the components of an individual segment’s profit or loss
- Evaluating an entity’s business activities
The amendments are in response to this feedback and require public entities to disclose significant segment expenses and expand segment disclosures reported in interim periods.
Disclosure Requirements
The amendments require incremental segment information—as described in more detail below—on an annual and interim basis for all public entities.
The amendments don’t change or remove the current disclosure requirements under Topic 280.
The amendments also don’t affect how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments.
Significant Expense Principle
The amendments require a public entity to identify expenses from the segment level information regularly provided to the CODM. A public entity is required to disclose those segment expense categories and amounts that are significant and included within each reported measure of segment profit or loss, on an annual and interim basis.
A public entity is required to evaluate segment expenses that are regularly provided to the CODM, as well as segment expenses that are easily computable from information that’s regularly provided to the CODM.
Characteristics that are qualitative, quantitative, or a combination of both, depending on the entity’s facts and circumstances, should be considered when determining whether segment expense categories and amounts are significant. The amendments don’t provide additional guidance on the significance threshold and public entities need to make this judgment similarly to how the threshold is already applied in other parts of Topic 280.
At the 2023 AICPA & CIMA Conference on Current SEC & PCAOB Developments, staff from the SEC’s Division of Corporation Finance indicated that a quarterly review by the CODM would generally meet the definition of regularly provided or regularly reviewed and based on facts and circumstances, even less often than quarterly review could be considered frequent enough to meet this definition.
Other Segment Items
The amendments require a public entity to disclose, on an annual and interim basis, an amount for other segment items by reportable segment. The amount for other segment items should be the difference between reported segment revenues less the significant segment expenses disclosed under the significant expense principle and each reported measure of segment profit or loss.
A qualitative description of the composition of other segment items also should be disclosed—even when a public entity doesn’t separately report significant segment expense.
Other segment items may include, but aren’t limited to, the following totals:
- A reportable segment’s expenses included in the reported measures of a segment’s profit or loss but not regularly provided to the CODM
- A reportable segment’s expenses included in the reported measures of a segment’s profit or loss but not disclosed as a significant expense
- A reportable segment’s gains, losses, or other amounts included in each reported measure of a segment’s profit or loss
- Segment expense amounts required under ASC 280-10-50-22—including interest expense, depreciation and amortization expense, and income tax expense—that are included in the reported measures of a segment’s profit or loss but not disclosed as a significant expense
Interim Periods
The amendments require a public entity to provide all annual disclosures about a reportable segment’s profit or loss and assets required by Topic 280 in interim periods.
Reported Measure of a Segment’s Profit or Loss
Topic 280 requires a public entity to report a measure of segment profit or loss that the CODM uses to assess segment performance and make decisions about allocating resources.
The amendments clarify that a public entity is permitted to report more than one measure of a segment’s profit or loss when the CODM uses more than one measure to evaluate segment performance and allocate resources. However, at least one of the reported measures—or the single reported measure if only one is disclosed—must be determined in accordance with the measurement principles most consistent with those used in measuring the corresponding amounts in the consolidated financial statements.
At the 2023 AICPA & CIMA Conference on Current SEC & PCAOB Developments, staff from the SEC’s Division of Corporation Finance discussed the amended guidance and focused on the reported measures of a segment’s profit or loss. The SEC staff emphasized that the amended guidance permits, but doesn’t require the disclosure of the additional measures of a segment’s profit or loss when the CODM uses more than one measure.
As additional disclosures may be reported but aren’t expressly permitted or required to be disclosed by generally accepted accounting principles (GAAP), additional measures of a segment profit or loss that aren’t calculated in accordance with GAAP would be considered non-GAAP and subject to the related SEC rules, regulations, and guidance on the use of non-GAAP measures, including Regulation G and Item 10(e) of Regulation S-K. The SEC staff also indicated that a public company should discuss with the Division of Corporation Finance when choosing to early adopt this ASU and include additional measures of profit and loss that aren’t calculated in accordance with GAAP.
Chief Operating Decision Maker
The amendments require the disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit and loss to assess performance of the segment and make decisions on the allocation of resources.
Single Reportable Segment
The amendments require a public entity that has a single reportable segment to provide all the disclosures required by the amendments in the ASU and all existing segment disclosures in Topic 280.
A public entity with a single operating segment is required to identify the measures of the segment’s profit or loss that the CODM uses in assessing segment performance and deciding how to allocate resources. As noted in the basis for conclusions, the board expects those measures to generally be apparent from the internal management reports that are regularly provided to the CODM.
A public entity is permitted to reference the primary financial statements in the segment footnote when a CODM of a single operating segment entity uses a consolidated profit or loss measure that is presented on the income statement.
Recasting of Previously Reported Information
Topic 280 requires recasting of prior-period information to conform to current-period presentation when a public entity changes the structure of its internal organization such that the composition of its reportable segments change.
The amendments require a public entity to also recast previously reported information when the segment information regularly provided to the CODM has changed such that there are changes in the identification of significant segment expenses.
The amendments don’t require recasting of prior-period segment information for a change in measurement methods used to determine reported segment profit or loss.
In addition, the ASU amended Topic 280 to replace the terms restate and restatement with the terms recast and recasting.
Effective Dates
The amendments are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted.
Transition Method
The amendments should be applied retrospectively to all periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption.
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