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FASB to Require Same Segment Expense Disclosures for Single and Multiple Segment Companies

Denise Lugo  Editor, Accounting and Compliance Alert

· 5 minute read

Denise Lugo  Editor, Accounting and Compliance Alert

· 5 minute read

The FASB on October 13, 2021, continued to build a proposal for segment disclosures, discussing follow-on issues related a principle that gets at expense details CEOs and other chief decision-makers typically see.

Board discussions, which have focused on how to apply the principle to public companies with multiple reportable segments, shifted to those that have a single reportable segment.

The board decided to specify all segment disclosure requirements within the standard should be applied consistently by single and multiple reportable segment entities, including the principle and the current segment disclosures. This is a change for some single reportable segment entities that may have thought segment reporting rules do not have to be applied consistently by single and multiple reportable segment entities, according to the discussions.

The proposal would provide implementation guidance about which profit measure should be applied – for example, an internal measure used by the chief operating decision-maker (CODM) to manage the business.

Not having the requirements would indicate that multiple segment entities would then provide more information by line of business than single segment entities, which would not be useful, FASB Vice Chair James Kroeker said.

“It would also put tremendous pressure on entities that are close to the margin of ‘do I have one segment or two’ if they’re not particularly interested in providing more disaggregated information to make conclusions that they are single segment reporting entities, therefore not requiring them to apply the expense principles – and I think that’s an undesirable outcome,” he said. “So for all of those reasons I do believe single segment reporting entities should be subject to the expense principle, and I think that a part of that we should just amend the segment reporting guidance to say that those entities also report all other information that would be required for anyone else reporting segment information.”

In October 2020, the board decided to pursue a principle that would require the disclosure of the significant segment expense categories and amounts that are both: regularly provided to the CODM and included in the reported measure of segment profit or loss.

Easily Derivable Concept

Discussions also continued about cases whereby management reports are regularly provided to the CODM and may include expense information in a form other than the actual expense amount. For example, advertising expense as a percentage of sales.

The board discussed developing an “easily derivable” concept as part of the principle, and decided that the concept would require public companies to apply the principle to expense amounts that are easily derivable from information that is regularly provided to the CODM.

No Mapping to Income Statement Lines Annually

Lastly, as part of the expense principle, the board at a prior meeting said each significant expense category would be required to be reconciled to the corresponding consolidated amount on an annual basis. The reconciliation of each significant expense category to the corresponding consolidated amount is not required to be an income statement line item, the discussions indicated. Under the principle, the expense categories are based on the CODM reporting package, which means that the expenses that are regularly provided to the CODM may not have a one-to-one relationship to an income statement line item.

The board by 4 to 3 voted against requiring a mapping of entity-wide expense totals to the corresponding income statement lines on an annual basis, the majority viewing it as cross footing to a total that went nowhere.

“Coming up to this total, which I’m not sure means anything and then reconciliating the total that doesn’t mean anything to the face, to me that doesn’t seem like the best way,” FASB Chair Richard Jones said. “I wouldn’t support mapping, consistent with my lack of support for cross footing, but I am certainly looking for ways to disaggregate the income statement.”

Board academic Christine Botosan, and analysts Gary Buesser and Fred Cannon, were the three dissents.

“I would say at the end of the day investors don’t own the segments independently, they own the entity, and having that mapping back to the entity is what those investors have to try to figure out with the segment information,” said Cannon. “I do believe that without this mapping there’s a significant cost imposed on users from the cross putting, what we call reconciliation. This mapping is critical information and without it poses significant cost to the users.”

Discussions on the project will continue at a future meeting.


This article originally appeared in the October 14, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.

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