The FASB on December 8, 2021, wrapped up the bulk of its discussions about what companies would be required to disclose in a future standard about operating segment expenses, a package of potential changes accounting chiefs say they are monitoring closely.
The proposal aims to provide more detailed disclosures about key expenses CEOs and other operating chiefs typically see about a public company’s core profit making units.
FASB staff will draft a proposal for external reviewers and following that, the board will discuss any miscellaneous issues that are flagged, then later vote on whether to propose the guidance next year, according to the discussions.
A proposal is planned for the second quarter in 2022.
The discussions wrapped up with a focus mainly on two issues: how finance chiefs would apply the rules when more than one performance measure is used; and how companies would transition to the disclosures, a critical issue.
The board will propose that companies apply the disclosure rules retrospectively, an accounting approach that requires the recasting of three years of prior financial statements so that they are comparable to investors.
A company would apply the disclosure principle in the period of adoption, identifying the significant expense categories and amounts to disclose, according to the discussions. The company would then conform the expense category to the comparative periods with those categories that have been identified in the period of adoption.
Companies could also be asked to disclose information the finance chief received that might have changed in the period of transition.
“Without retrospective [application] it would be three years before we have trend line analysis in many cases and I think that would impose a significant cost on users that we need to keep in mind,” FASB member Fred Cannon said.
Overall the total disclosure package would amend Topic 280, Segment Reporting, guidance that only applies to public companies.
In earlier discussions, the board zeroed in on a principle that would require a company to report significant segment expenses that are both regularly provided to the chief operating decision maker (CODM) and included in the company’s reported measure of segment profit or loss.
December 8 discussions signalled the board would aim to reduce diversity in practice for those CEOs and finance chiefs that use more than one performance measure to assess profit or loss. The board agreed to clarify that the segment expense disclosures would apply across the board.
All significant segment expenses would be reconciled to the corresponding consolidated amount annually and an amount for other items would be disclosed for each measure.
“To the extent that the CODM is regularly provided multiple measures and they’re using that to make resource allocation decisions, my preference would be that the principle applies to all those measures,” FASB member Susan Cosper said. “We’re hearing consistently from investors that they would find the information valuable and there is some diversity in disclosing multiple measures.”
This article originally appeared in the December 10, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.
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