On November 27, 2023, the Financial Accounting Stands Board (FASB) issued a final Accounting Standards Update (ASU) related to disclosures about a public entity’s reportable segments. This standards update is ASU No.2023-07, titled Improvements to Reportable Segment Disclosures. The ASU aims to enhance the disclosures public entities provide regarding significant segment expenses so that investors can better understand an entity’s overall performance.
All public entities required to report segment information in accordance with Accounting Standards Codification (ASC) 280 will have to implement these amendments starting in annual periods beginning after December 15, 2023 – i.e., next year. The amendments in the ASU, which were driven by investor desires, improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses.
The key amendments are the following:
- Requires that a public entity disclose, on an annual and interim basis, significant expenses that are regularly provided to the chief operating decision maker (CODM). These expenses are also included within each reported measure of segment profit or loss.
- Requires that a public entity disclose on an annual and interim basis an amount for other segment items. The other segment item category is described as the difference between segment revenue less the significant expenses disclosed.
- Requires that a public entity provide all annual disclosures about the reportable segment’s profit & loss during the interim periods.
- Provide a better description of the measures used by the CODM in assessing the segment’s performance, and if more than one measure is used in this assessment, clarify that multiple measurements are being used. A public entity is not required to disclose all measurements used in the assessment of the segment. However, the measurement that is disclosed should be the most consistent with the measurement principles used in measuring the corresponding amounts within the segment.
- Requires that a public entity disclose the position and title of the CODM along with an explanation of how the CODM uses the reported measure(s) from amendment #4.
- Requires that a public entity with only one reportable segment provide all of the disclosures required by the amendments in this ASU and all existing segment disclosures required by ASC 820.
This ASU was approved by six of the seven FASB members but was dissented by the academic Christine Botosan. FASB Chair Richard Jones stated that this amendment “will improve financial reporting by providing additional information about a public company’s segment-significant expenses and more timely and detailed segment information reporting throughout the fiscal period.” The hope is that with this new requirement, investors and other readers of the financial statements will be more equipped to make better decisions and analyses about public companies.