The Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU), 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 proposed amendments are intended to address requests from investors for more detailed information about a reportable segment’s expenses.
Comments on the proposed ASU are due by December 20, 2022.
Scope
The proposed amendments would 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 better assess financial trends, perform more precise financial modeling when forecasting the components of an individual segment’s profit or loss, and better evaluate an entity’s business activities.
The proposed amendments are intended to respond to this feedback by requiring public entities to disclose significant segment expenses and expanding segment disclosures reported in interim periods.
The proposed amendments would represent the FASB’s most significant change to segment reporting since 1997.
Proposed Disclosure Requirements
The proposed ASU would require incremental segment information—as described in more detail below—on an annual and interim basis for all public entities.
The proposed amendments wouldn’t change or remove the current disclosure requirements in Topic 280.
The proposed amendments also wouldn’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 Segment Expenses
The proposed amendments would require a public entity to disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the CODM and included within each reported measure of segment profit or loss.
When determining the segment expense categories and amounts that should be disclosed, a public entity would identify the expenses from the segment level information regularly provided to the CODM and then disclose those segment expense categories and amounts that are significant.
A public entity would evaluate segment expenses that are regularly provided to the CODM, as well as segment expenses that are easily computable from information that is regularly provided to the CODM.
The proposed amendments wouldn’t provide additional guidance on the significance threshold and public entities would make this judgment similarly to how the threshold is already applied in other parts of Topic 280.
Other Segment Items
The proposed amendments would 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 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, these 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
Interim Periods
The proposed amendments would require a public entity to provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods.
Reported Measure of a Segment’s Profit or Loss
The proposed amendments would clarify that a public entity would be permitted to report more than one measure of a segment’s profit or loss used by the CODM 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.
Single Reportable Segment
The proposed amendments would require a public entity that has a single reportable segment to provide all the disclosures required by the amendments in the proposed ASU and all existing segment disclosures in Topic 280.
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