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FASB to Require Chief Decision-Maker View for Disclosing Segment Expense

Thomson Reuters Tax & Accounting  

· 5 minute read

Thomson Reuters Tax & Accounting  

· 5 minute read

By Denise Lugo

The FASB’s project to revise disclosure rules for operating segments of a company continues to be of major interest to investors especially in relation to expenses those profitable units generate, according to remarks by FASB’s Chair and Technical Director at a recent industry conference.

The board so far decided to stick with “a chief operating decision-maker approach,” meaning it is seeking to develop disclosures that would reflect what the chief operating decision-maker (CODM) sees when looking at expenses by segments, board chair Richard Jones said on November 4, 2020, at the virtual Financial Executives International Corporate Financial Reporting Insights conference.

Only public companies are required under U.S. GAAP to report about their operations by segments. Details about significant operating segment expenses would enable investors to get better insight about which portions of a company’s business divisions are profitable or which are losing money.

In October discussions, the board asked FASB staff accountants to develop a principles-based disclosure rule to require public companies to disclose significant segment expense categories by reportable segments.

FASB staff members were asked to research a disclosure principle based on significant expense categories that are: regularly provided to the chief operating decision-maker; and included in the reported measure of segment profit or loss.

Among issues being considered are how to define significant expense, how to think about whether there is an aggregation of those assets that would be permitted, board director Hillary Salo told the same conference. Staff is also studying what was done in the past regarding how this would change the type of information that is being presented by companies.

Further discussions on the topic will likely take place early 2021, Salo said. She said the board will try to balance investor needs for transparency with cost and complexity concerns of financial statement preparers.

“The key here really is the fact that we heard from users that understanding expenses and getting more information related to cost on a segment basis is really important,” Salo said. “What we want to make sure is that we’re doing that in a way that is thoughtful in considering the cost and complexities from a preparer perspective as well.”

Panel moderator Alphabet Inc.’s Vice President and Chief Accountant Amie Theuner flagged a conference attendee’s question about the status of segment aggregation rules the board initially said it would revise under the project, but which was dropped. Theuner asked about the status of that work.

Salo said that the issue has not yet been ruled out for future standard-setting. “It’s still potentially on the list of items for us to consider. At this point we’re really focused on the expense categories, the significant expenses at this point,” she said. “This project has been going on for a long time and what we want to do is have set objectives that we can meet with regards to this project to provide the information to users.”

The FASB added segment reporting to its agenda in September 2017 after an Invitation to Comment (ITC) it issued in 2016 revealed that the topic was especially interesting to financial statement users.

Respondents to the ITC commented that a fundamental reconsideration of Topic 280, Segment Reporting, was not needed, but targeted improvements were warranted to the segment aggregation criteria and the disclosure requirements to provide users with information that would be more useful for informing their investment decisions.

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