February 27, 2024

Revamped Segment Reporting Standards: A Leap Towards Enhanced Financial Disclosures

By Michael Shoff, Director, Financial Accounting & Advisory Services

Revamped Segment Reporting Standards: A Leap Towards Enhanced Financial Disclosures Financial Accounting & Advisory Services

The Financial Accounting Standards Board (FASB) has announced a crucial update to segment reporting requirements, a move that promises to significantly improve the transparency of financial disclosures for public entities. Before delving into the details of the new standards, it is important to understand what segment reporting is and why it matters.

Segment reporting is a key component of financial disclosures that allows investors and analysts to see a public company’s operations broken down into distinct parts, or ’segments.’ These segments can be based on products, services, geographical areas, or other aspects of a company’s operations. The objective is to provide deeper insight into the performance of the most critical components of a company’s business, which may not be apparent from the consolidated financial statements alone. Segment reporting helps stakeholders assess risks and returns and make more informed decisions regarding their investments.

With this background in mind, the FASB has taken steps to enhance the level of detail provided in segment reporting. Richard R. Jones, the Chair of FASB, stated, “The new segment reporting guidance stems from thorough consultations with various stakeholders, including investors who have stressed the need for better insights into public companies’ segment expenses. These enhancements to financial reporting will equip analysts with more decision-useful financial analyses by providing additional information on significant segment expenses and more timely and detailed segment information throughout the fiscal period.”

The key amendments introduced in this ASU include the following:

  1. Public entities are now required to disclose significant segment expenses regularly provided to the chief operating decision maker (CODM) on an annual and interim basis, which are factored into each reported measure of segment profit or loss.
  2. There is a mandate for public entities to disclose on an annual and interim basis an amount for other segment items by reportable segment, along with a description of what this category includes. The ’other segment items’ are the residual figures after deducting significant disclosed expenses from segment revenue for each reported measure of segment profit or loss.
  3. Public entities must provide all annual disclosures about a reportable segment’s profit or loss and assets currently outlined by FASB Accounting Standards Codification® Topic 280, Segment Reporting, even during interim periods.
  4. The ASU clarifies that if multiple profit or loss measures are utilized by the CODM in segment performance assessment and resource allocation, a public entity may disclose one or several of these measures. However, at least one of the disclosed measures should align with the principles used in the consolidated financial statements.
  5. The update necessitates that public entities reveal the title and position of the CODM and explain the application of reported segment profit or loss measures in performance assessment and resource allocation.
  6. Entities with a single reportable segment are required to provide all disclosures mandated by the ASU and all existing segment disclosures in Topic 280.

This ASU is applicable to all public entities that report segment information per Topic 280. It will come into effect for annual periods starting after December 15, 2023, necessitating compliance from all public entities from that point onwards.

Expert Guidance for Enhanced Segment Reporting

As public entities prepare to adopt the FASB’s new segment reporting standards, the need for expert financial guidance is more critical than ever. Marcum Financial Accounting & Advisory Services is adept at assisting companies with these intricate reporting requirements. Their seasoned professionals are equipped to ensure that organizations not only meet the new standards but also harness this opportunity to enhance their financial disclosures and strategic planning.

If you have any questions relating to the new standard, ask Marcum today.