Segment reporting—a frequent topic of SEC comments and the subject of long-running debate at the Financial Accounting Standards Board (FASB)—continues to appear on the FASB's Technical Agenda, with some likely changes on the near-term horizon. Proposed modifications to segment reporting have taken several forms over the past five years, including potential changes to the reportable segments process, adjustments to the reportable segment thresholds, and modifications to the aggregation criteria, among others, all with the goal of delivering more decision-useful information to investors about company performance.
At its July 27 meeting, the FASB directed its staff to draft a proposed Accounting Standards Update to amend the current segment reporting standard, which will include the following key elements applicable to public entities:
- A requirement to disclose the title and position of its Chief Operating Decision Maker (CODM).
- A requirement to disclose segment expenses under a "significant expense principle" that would apply to all disclosed segment measures and require disclosure of the significant expense categories and amounts that are both (1) regularly provided to the CODM and (2) included in each reported measure of segment profit or loss.
- A requirement to disclose the nature of the expense information the CODM uses to manage operations if the entity does not disclose significant expense categories and amounts under the significant expense principle for one or more of its reportable segments.
- The ability to report multiple measures of a segment's profit or loss, provided at least one of the reported measures is one that management determines to be the most consistent with how corresponding amounts in the consolidated financial statements are measured.
The full text of the proposed Accounting Standards Update is expected in Q3 2022 and will have a 75-day comment period. A summary of tentative FASB decisions in regards to segment reporting is available here.
As companies look toward the end of the year and may begin taking a fresh look at their current segment reporting, these proposed changes may be worth bearing in mind along with a renewed focus on the information regularly provided to the CODM, particularly about expense items. Companies may also want to review PwC's recently published US SEC Comment Letter Trends analysis, which includes helpful insights regarding the latest areas of SEC focus on segment reporting, the third most common area of comment.
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