C.5 Other Matters

What is the starting point for the reconciliation of the reportable segment disclosures?

ASC 280-10-50-30 requires a public entity to provide reconciliations for certain information included in the segment reporting disclosures. Reconciliations related to segment revenue and the segment measure(s) of profit or loss should start with the amount attributable to the reportable segments and reconcile to consolidated income before tax, if the performance measure is a pretax measure, or consolidated income after tax, if the performance measure is a post-tax measure (see Section 4.5). In this context, the “corporate and all other” or “all other” category presented under ASC 280-10-50-15 does not represent a reportable segment and should be excluded from the reportable segment total (see Section 3.7).

In the period of adoption of ASU 2023-07, does an entity need to disclose the prior-period significant segment expenses for each reportable segment?

Yes. As noted in the transition guidance in ASC 280-10-65-1(b), a public entity is required to apply the guidance in ASU 2023-07 on enhanced segment disclosures “retrospectively to all prior periods presented in the financial statements unless it is impracticable to do so.” ASC 280-10-65-1(b) further provides that if an entity determines that providing the information is impracticable, the entity “shall disclose that fact and explain why retrospective application is impracticable.” We expect circumstances in which a company concludes that it is impracticable to provide the disclosure to be rare.

In the period of adoption of ASU 2023-07, how does an entity determine the significant expenses for the comparative period?

The transition guidance in ASC 280-10-65-1(b) provides that the significant segment expense and other segment item amounts that are disclosed in the comparative periods should “be based on the significant segment expense categories identified and disclosed in the period of adoption.”

Do the updates to segment information disclosures from ASU 2023-07 affect the disclosures in MD&A?

It depends. When adopting the recently issued ASU 2023-07, registrants will need to consider which incremental disclosures, if any, need to be incorporated into MD&A to comply with Regulation S-K, Item 303(b). For instance, since the ASU requires significant segment expenses and other segment items to be disclosed in the notes to the financial statements, registrants should consider whether incorporating a discussion of such items into MD&A is necessary to provide what Regulation S-K, Item 303(a), describes as “material information relevant to an assessment of the financial condition and results of operations of the registrant.”

Registrants will also need to consider whether MD&A disclosures include segment expense disclosure that differs from what is disclosed in the segment footnote. If such expense information is also regularly provided to the CODM, the segment expenses may be subject to the significant expense principle analysis for purposes of disclosure in the segment footnote. Note that ASU 2023-07 does not preclude a registrant from disclosing significant segment expenses in more than one way (e.g., by function and by nature) if multiple sets of segment expense information are regularly provided to the CODM and are deemed to be significant expenses.

Are there reporting implications when there is a retrospective change to an entity’s significant segment expenses?

It depends. In accordance with ASU 2023-07, if an entity changes (1) “the segment information that is regularly provided to the [CODM] in a manner that causes the identification of significant segment expenses to change” or (2) “its internal reports and the segment expense information that is regularly provided to the CODM changes in the current period,” such changes should be treated in a manner that is consistent with the treatment of changes in the composition of the entity’s reportable segments. For example, if a registrant files a new or amended registration statement (other than Form S-8), the registrant should consider whether it is required to recast prior-period significant segment expense if the new or amended registration statement is filed after the filing of a Form 10-Q that first reports a change in significant segment expense. See Section 7.5 for reporting implications of changes in the composition of reportable segments and/or significant segment expenses related to registration statements, prospectus supplements, and nonpublic offerings.

When an entity has what ASU 2023-07 describes as “significant changes from prior periods to the measurement methods of expenses, the method for allocating expenses to a segment, or changes in the method for allocating centrally incurred expenses,” we believe, as indicated in the ASU, that “it is preferable [though not required] to show all segment information on a comparable basis to the extent it is practicable to do so” in a manner consistent with the existing recasting requirements for reflecting a change in the measurement of a segment’s profit or loss.