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FASB Proposes Biggest Changes in 25 Years for Public Company Disclosure of Business Unit Expenses

Denise Lugo  Editor, Accounting and Compliance Alert

· 5 minute read

Denise Lugo  Editor, Accounting and Compliance Alert

· 5 minute read

The FASB on Oct. 6, 2022, issued a proposal that would require public companies to disclose any significant expenses that impact their business units and to provide the title and position of who chiefly makes their financial decisions.

Investors want to know “who or what group” primarily reviews company expenses to “allocate resources and assess performance ” as that would provide context for the disclosure information, a text of the proposal says.

The board said it is seeking public comment on the provisions, Proposed Accounting Standards Update (ASU) No. 2022-100Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures, which represent the most significant change to segment reporting in 25 years.

The proposal would improve the information that investors currently get so that they can track expenses both annually and quarterly in the business segments of a company, units especially that can drain profits and thereby influence stock prices the most.

The changes were developed after extensive outreach, the board said.

“The proposed ASU would represent the FASB’s most significant change to segment reporting since 1997,” FASB Chair Richard Jones said 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.”

However, two FASB members—academic Christine Botosan and analyst Gary Buesser—wrote dissents, stressing the changes do not go far enough for investors. The proposed “modest improvements fall far short of financial statement users’ requests for (a) a finer partitioning of entities’ operating activities into reportable segments and (b) more financial line items about each segment,” the board members said jointly, among other reasons.

Companies have until Dec. 20 to submit comments.

Main Tenets of the Proposal

Segment reporting provides details about revenue generating business units within a public company. Under U.S. GAAP, companies have to report a segment if it has at least 10 percent of revenues, 10 percent of the profit or loss, or 10 percent of the combined assets of the company.

If finalized, the proposal would specifically:

  • Require that a public company disclose, annually and quarterly, significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit or loss. The information is expected to provide enhanced transparency about the expenses of each reportable segment and the components of a segment’s profit or loss that aligns with how management internally views segment information. Segment expense information would be incremental for half of the public companies that participated in its outreach, the board said.
  • Require that a public company disclose, annually and quarterly, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss.
  • Require that a public company provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280, Segment Reporting, in quarterly periods.
  • Clarify that if the CODM 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 company’s consolidated financial statements.
  • Require that a public company that has a single reportable segment provide all the disclosures required by the proposal and all existing segment disclosures in Topic 280. This would create consistency with disclosure requirements for public companies that have multiple reportable segments and is expected to result in disclosure of incremental information about those companies. About one-third of public companies disclose their results as a single reportable segment, the board said.
  • Require retrospective application. The board decided that reporting the segment disclosures for all comparative periods presented (that is, each period for which an income statement is presented) would provide users with comparable segment information for evaluating trends upon adoption and most appropriately achieve the objective of the changes.


This article originally appeared in the October 7, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.

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