On October 6, 2022, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU), “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which is meant to provide more useful and expanded disclosures to users of public entity financial statements. The proposed ASU will not change how operating segments are currently identified, how reportable segments are identified, or how profit or loss and total assets for each reportable segment are measured.

The key changes to Topic 280 and other information are further discussed below.

Significant Segment Expenses

For each reportable segment, on an annual and interim basis, an entity will need to disclose the significant segment expenses which meet all the following criteria:

• Expenses are included in the reported measure of a segment’s profit or loss
• Information is regularly provided to the CODM (chief operating decision maker)
• Expenses are easily computable, which may be in a form other than actual amounts (e.g., computing a segment cost of sales amount from a segment revenue amount and a segment gross margin amount)
• Amounts are considered significant

However, an entity will not need to reconcile the total of the reportable segments’ amount for significant expense categories to the corresponding consolidated amount.

In the period of adoption, an entity will need to qualitatively disclose changes in the significant expense categories. If significant expense categories and amounts are not disclosed for one or more of its reportable segments, the entity is still required to explain the nature of the expense information the CODM uses to manage operations (e.g., forecasted expense information).

Other Segment Items

For each reportable segment, on an annual and interim basis, a public entity will be required to disclose both an amount and a qualitative description of other segment items, which is the difference between reported segment revenues less the significant segment expenses and reported segment profit or loss.

Examples of other segment items include:

• A segment expense included in the reported measure of a segment’s profit or loss that is either not significant or not regularly provided to the CODM
• Gains, losses, and other amounts included in the reported measure of a segment’s profit or loss

Therefore, if an entity does not disclose significant expense categories for each reportable segment, it will still need to disclose other segment items.

Single Reportable Segment

Currently, single reportable segment entities often do not disclose segment information because it is not required under Topic 280. The proposed ASU will require these entities to comply with both existing and proposed segment disclosure requirements. 

Single reportable segment entities will need to report the measure of segment profit or loss that the CODM uses to manage operations, and this measure (e.g., earnings before interest, taxes, and depreciation) may not be presented on the consolidated income statement. In such a case, the public entity will need to reconcile this measure to consolidated income before income taxes and discontinued operations.

Measure of Segment Profit or Loss

If the CODM uses more than one measure of a segment’s profit or loss, at least one of the reported segment profit or loss measures should be the one that is most consistent with the measurement principles used in measuring the corresponding amounts in the entity’s consolidated financial statements.

Other

In addition to the disclosures currently required for factors used to identify reportable segments and the types of products and services from which each reportable segment derives its revenues, a public entity will be required to disclose the title and position (e.g., the CEO) of the individual or group identified as the CODM.

Recasting of Previously Reported Information

Currently under Topic 280, if a public entity changes the structure of its internal organization that causes the composition of its reportable segments to change, it is required to recast information for earlier periods, including interim periods, to conform to the current period presentation of the individual items of disclosure unless it is impracticable to do so. The proposed ASU will additionally require the entity to perform the same recast of information if segment information regularly provided to the CODM is changed in such a manner that causes the identification of significant segment expenses to change.

If recasting of significant segment expenses is impracticable, an entity will still need to disclose the following:

• Significant changes to the measurement methods of expenses
• The method for allocating expenses to a segment
• Changes in the policies for allocating centrally incurred expenses

Adoption

In the period of adoption, a public entity will retrospectively apply the amendments of the proposed ASU to all prior periods presented in the financial statements. The comment period for the proposed ASU closed on December 20, 2022. Comment letters can be viewed on the FASB’s website.