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FASB Proposed Changes to Segment Reporting

By Nancy Fass
November 1, 2022

The Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, in October 2022.

 

It would require public companies to disclose any significant expenses that impact their business units and to provide the title and position of who makes their financial decisions. The FASB is asking for comment on the proposed ASU by December 20, 2022.

 

The proposal, which would be the most significant change to segment reporting in 25 years, would improve the disclosures about a public entity’s reportable segments and address requests from investors and other allocators of capital for additional, more detailed information about a reportable segment’s expenses.

 

Investors, lenders, creditors, and other allocators of capital 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 segment reporting accounting guidance hasn’t changed significantly since the issuance of FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, in 1997. While investors generally support the existing segment reporting guidance, they have expressed interest in exploring ways to require disclosure of additional segment information.

 

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 FASB 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.

 

The proposal can be found here.

 

Nancy Fass is a senior editor for IMA® (Institute of Management Accountants). She can be reached at nfass@imanet.org.
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