Proposed Accounting Standards Update

Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures

---

This document represents the view of the FASB staff. The views herein do not necessarily reflect the views of the FASB. Official positions of the FASB are determined only after extensive due process and deliberation.

---

On October 6, 2022, the Financial Accounting Standards Board (FASB) issued proposed Accounting Standards Update (ASU), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. Stakeholders are asked to review and provide comment on the proposed ASU by December 20, 2022.

Why Is the FASB Issuing This Proposed Accounting Standards Update (ASU)?

Investors, lenders, creditors, and other allocators of capital (collectively “investors”) have observed that segment information is critically important in understanding a public entity’s different business activities. That information enables investors to better understand an entity’s overall performance and assists in assessing potential future cash flows.

The Board is issuing this proposed ASU to improve the disclosures about a public entity’s reportable segments and address requests from investors for additional, more detailed information about a reportable segment’s expenses.

The segment reporting accounting guidance has not changed significantly since the issuance of FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, in 1997. While feedback on the 2012 Post-Implementation Review Report on Statement 131, as well as the 2016 Invitation to Comment, Agenda Consultation, indicated that investors generally support the existing segment reporting guidance, they were interested in exploring ways to require disclosure of additional segment information.

The Board is issuing this proposed ASU to improve the disclosures about a public entity’s reportable segments and address requests from investors for additional, more detailed information about a reportable segment’s expenses. 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.

What Would the Proposed ASU Do?

The amendments in this proposed ASU introduce a disclosure principle that would require that public entities report, on an annual and interim basis, incremental information about significant segment expenses included in a segment’s profit or loss measure. The Board decided to focus on expense information after considering feedback from stakeholders, which indicated that investors frequently request more detailed expense information at the segment level. Additional expense information helps 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.

Investors also stated that additional expense information by reportable segment would complement the data received from other sources (for example, information outside the financial statements within other public filings, earnings releases, and management’s discussion and analysis) and could be used by investors to challenge and confirm explanations provided by management about an entity’s current and expected future performance. Investors also noted understanding how the chief operating decision maker manages segment expenses and understanding the information they do and do not use is helpful.

What Are the Main Provisions?

The amendments in this proposed ASU would improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The key proposed amendments in the ASU would:

1. Require that a public entity 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.
2. Require that a public entity 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 under the significant expense principle and each reported measure of segment profit or loss.
3. Require that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods.
4. Clarify that multiple measures of segment profit or loss may be disclosed and that 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 (or the single reported measure, if only one is disclosed) should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s consolidated financial statements. In other words, in addition to the measure that is most consistent with the measurement principles under generally accepted accounting principles, a public entity is not precluded from reporting additional measures of a segment’s profit or loss that are used by the CODM.
5. Require that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this proposed ASU and all existing segment disclosures in Topic 280.

How Do the Main Provisions Differ from Current Generally Accepted Accounting Principles (GAAP), and Why Would They Be an Improvement?

Currently, Topic 280 requires that a public entity disclose certain information about the entity’s reportable segments. For example, a public entity is required to report a measure of segment profit or loss that the CODM uses to assess segment performance and make decisions about allocating resources. Topic 280 also requires other specified segment items and amounts, such as depreciation, amortization, and depletion expense, to be disclosed under certain circumstances. The amendments in this proposed ASU would not change or remove those disclosure requirements.

The amendments in this proposed ASU would also not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments.

The amendments in this proposed ASU would improve financial reporting by requiring incremental segment information on an annual and interim basis for all public entities to enable investors to perform more decision-useful financial analyses.

Who Would Be Affected by the Amendments in This Proposed ASU?

The amendments in this proposed ASU would apply to all public entities that are required to report segment information in accordance with Topic 280, Segment Reporting.