The Financial Accounting Standards Board is proposing to require companies to disclose more detailed information about the different segments of their business to help investors learn more about their expenses.
FASB issued a
Segment information is critically important for investors in understanding a company's different business activities, as well as the entity's overall performance and potential future cash flows. Investors have pointed out to FASB that while information about a segment's revenue and measure of profit or loss is disclosed in an entity's financial statements, there's generally limited information provided about a segment's expenses.
If approved, the proposals would mean the biggest change in segment reporting in 25 years. The amendments in the proposed update come in response to feedback that FASB has received from investors and others, and would improve reportable segment disclosure requirements, mainly through enhanced disclosures about significant segment expenses. It comes at a time when the Securities and Exchange Commission recently heard from an Investor Advisory Committee that FASB may need an overhaul to be more responsive to investor needs and finalize new accounting standards faster (
"The proposed ASU would represent the FASB's most significant change to segment reporting since 1997," said FASB's chair, Richard Jones, in a statement. "On the basis of our extensive stakeholder outreach, the proposed ASU would provide investors and other allocators of capital with valuable insights into significant segment expenses, expand segment disclosures reported in interim periods, and require disclosures for single-segment entities."
The proposed update would require public companies to disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision-maker and included within each reported measure of segment profit or loss.
It would also require a public entity to 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 would represent the difference between segment revenue minus the significant expenses disclosed and each reported measure of segment profit or loss.
In addition, the changes would require a public company to provide all annual disclosures about a reportable segment's profit or loss and assets currently required by Topic 280 in FASB's accounting standards codification, "Segment Reporting," in interim periods.
It would also clarify that if the chief operating decision-maker 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 a public entity's consolidated financial statements.
In addition, the proposed standard would require that a public entity that has a single reportable segment must provide all the disclosures required by the amendments in the proposed ASU and all existing segment disclosures in Topic 280. The amendments in the proposed accounting standards update would apply to all public entities that are required to report segment information in accordance with Topic 280.
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FASB is asking for comments on the proposed update by Dec. 20, 2022. Investors interested in providing input on this proposal can contact the FASB investor liaisons — Chandy Smith at
