4.9 Restatement of Segment Data Because of Changes in Reportable Segments or Segment Expenses
ASC 280-10
50-34 If a public entity changes the structure of its internal organization in a manner that causes the
composition of its reportable segments to change, the corresponding information for earlier periods, including
interim periods, shall be restated unless it is impracticable to do so. Accordingly, a public entity shall restate
those individual items of disclosure that it can practicably restate but need not restate those individual items,
if any, that it cannot practicably restate. Following a change in the composition of its reportable segments, a
public entity shall disclose whether it has restated the corresponding items of segment information for earlier
periods.
Pending
Content (Transition Guidance: ASC 280-10-65-1)
50-34
If a public entity changes the structure of its
internal organization in a manner that causes the
composition of its reportable segments to change
or the public entity changes the segment
information that is regularly provided to the
chief operating decision maker in a manner that
causes the identification of significant segment
expenses to change, the corresponding information
for earlier periods, including interim periods,
shall be recast unless it is impracticable to do
so. Accordingly, a public entity shall recast to
conform to the current-period presentation those
individual items of disclosure that it can
practicably recast but need not recast those
individual items, if any, that it cannot
practicably recast. In those cases, a public
entity shall disclose whether it has recast the
corresponding items of segment information for
earlier periods.
50-34A For example, a fundamental reorganization of an entity may cause it to be very difficult and expensive
to restate segment information and therefore it may not be practicable.
Pending Content (Transition Guidance: ASC
280-10-65-1)
50-34A For example, a fundamental
reorganization of an entity may cause it to be
very difficult and expensive to recast segment
information and, therefore, it may not be
practicable.
Unless restatement is impracticable, an entity must restate prior-period segment
data when there has been a change in the composition of the entity’s
reportable segments. Such a change could result from a reorganization of the
internal management structure that leads to the identification of new or
different operating segments, as discussed in Section 2.10. Restatement of prior
segment data would also be required when an operating segment is identified
as a new reportable segment in the current period on the basis of
quantitative thresholds, as discussed in Chapter 3.
Paragraph 100 of the Background Information and Basis for Conclusions of FASB Statement 131 observes, in part:
The Board decided to require restatement of previously reported segment information following a change in
the composition of an enterprise’s segments unless it is impracticable to do so. Changes in the composition of
segments interrupt trends, and trend analysis is important to users of financial statements.
The information in the segment footnote should be presented consistently for all
periods. Therefore, unless restatement is
impracticable, prior-period segment data presented
for comparative purposes for an operating segment
that is identified as a reportable segment in the
current period should be restated to reflect the
newly reportable segment as a separate segment.
See the next section for further discussion of the
impracticability exception.
Also see Section 7.5 for
additional information on the implications of
retrospective changes in reportable segments.
Changing Lanes
ASU 2023-07 amends ASC 280 to
replace the word “restate” with “recast.” This update was made
to distinguish the recasting of segment information from the
correction of an error under ASC 250. In paragraph BC83 of ASU
2023-07, the FASB states the following:
During its deliberations, the Board observed that Topic
280 uses the term restatement when referring to the
recasting requirements. However, Topic 250, Accounting
Changes and Error Corrections, defines that term as the
process that an entity undergoes to revise its previously
issued financial statements to reflect the correction of
an error subsequently identified in those financial
statements. Therefore, the Board decided to replace the
term restatement with recast throughout
Topic 280 to avoid potential confusion about its meaning
in the context of segment reporting. Because preparers are
generally able to apply the current guidance in practice,
the Board expects that the revised terminology will not
result in a change in that practice or create
diversity.
The section below discusses changes in the
segment information that is regularly provided to
the CODM.
4.9.1 Disclosure When Restatement of Earlier Periods Is Impracticable
ASC 280-10
50-35 If a public entity has changed the structure of its internal organization in a manner that causes the
composition of its reportable segments to change and if segment information for earlier periods, including
interim periods, is not restated to reflect the change, the public entity shall disclose in the year in which the
change occurs segment information for the current period under both the old basis and the new basis of
segmentation unless it is impracticable to do so.
Pending
Content (Transition Guidance: ASC 280-10-65-1)
50-35
If a public entity has changed the structure of
its internal organization in a manner that causes
the composition of its reportable segments to
change or has changed the segment information that
is regularly provided to the chief operating
decision maker in a manner that causes the
identification of significant segment expenses to
change, and if segment information for earlier
periods, including interim periods, is not recast
to reflect the change, the public entity shall
disclose in the year in which the change occurs
segment information for the current period under
both the old basis and the new basis of
segmentation or the old and new significant
segment expense categories, respectively, unless
it is impracticable to do so.
If restatement of earlier-period segment information is impracticable, an entity must provide current-period
segment information under both the old basis and new basis of segmentation for the year in
which the change occurs. Such information would not be required if it is impracticable to provide it.
However, an entity that determines that it would be impracticable to present the segment information
under both the old basis and new basis should be prepared to demonstrate and support that
conclusion with adequate documentation.
Situations in which it is impracticable to restate earlier-period operating segment disclosures are
expected to be unusual.
Changing Lanes
Under ASC 280-10-50-35 (as amended by ASU
2023-07), if (1) there is a change in “[t]he
segment information that is regularly provided to
the chief operating decision maker in a manner
that causes the identification of significant
segment expenses to change” and (2) restatement of
earlier-period segment information is
impracticable, an entity must provide
current-period segment information under both the
old basis and new basis of segmentation or the old
and new significant segment expense categories for
the year in which the change occurs.
4.9.2 Change in Measure of Segment Profit or Loss
ASC 280-10
50-36 Although restatement is
not required to reflect a change in measurement of
segment profit and loss, it is preferable to show all
segment information on a comparable basis to the extent
it is practicable to do so. If prior years’ information
is not restated, paragraph 280-10-50-29(d) nonetheless
requires disclosure of the nature of any changes from
prior periods in the measurement methods used to
determine reported segment profit or loss and the
effect, if any, of those changes on the measure of
segment profit or loss.
Pending
Content (Transition Guidance: ASC 280-10-65-1)
50-36
Although recasting is not required to reflect a
change in measurement of segment profit and loss,
it is preferable to show all segment information
on a comparable basis to the extent it is
practicable to do so. If prior years’ information
is not recast, paragraph 280-10-50-29(d)
nonetheless requires disclosure of the nature of
any changes from prior periods in the measurement
methods, including 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, used to determine reported
segment profit or loss and the effect, if any, of
those changes on the measure of segment profit or
loss.
Changing Lanes
The changes made by ASU 2023-07 related to the
recasting of prior-period segment expense
information can be summarized as follows:
- If an entity “changes the structure of its internal organization in a manner that causes the composition of its reportable segments to change or . . . changes the segment information that is regularly provided to the chief operating decision maker in a manner that causes the identification of significant segment expenses to change,” the entity is required to recast all periods, including interim periods, unless it is impracticable to do so. Such recasting should be performed in a manner consistent with the existing recasting requirements related to a change in the composition of the entity’s reportable segments (ASC 280-10-50-34).
- Recasting is not required when an entity has “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.” However, “it is preferable 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 (ASC 280-10-50-36).
4.9.3 Restatement of Prior Periods Because of the Disposal of Part of an Operating Segment
ASC 280-10
55-7 If a reportable segment
meets the conditions in paragraphs 205-20-45-1A through
45-1G to be reported in discontinued operations, an
entity is not required to also disclose the information
required by this Subtopic. Paragraph 280-10-55-19
addresses whether there is a need to restate previously
reported information if there is a disposal of a
component that was previously disclosed as a reportable
segment.
Pending
Content (Transition Guidance: ASC 280-10-65-1)
55-7
If a reportable segment meets the conditions in
paragraphs 205-20-45-1A through 45-1G to be
reported in discontinued operations, an entity is
not required to also disclose the information
required by this Subtopic. Paragraph 280-10-55-19
addresses whether there is a need to recast
previously reported information if there is a
disposal of a component that was previously
disclosed as a reportable segment.
55-19 Segment information for
prior periods for disposal of a component that was
previously disclosed as a reportable segment is not
required to be restated. However, if the income
statement and balance sheet information for the
discontinued component have been reclassified in
comparative financial statements, the segment
information for the discontinued component need not be
provided for those years. Paragraph 280-10-55-7
addresses disclosure requirements if a component of a
public entity that is reported as a discontinued
operation is a reportable segment.
Pending
Content (Transition Guidance: ASC 280-10-65-1)
55-19
Segment information for prior periods for disposal
of a component that was previously disclosed as a
reportable segment is not required to be recast.
However, if the income statement and balance sheet
information for the discontinued component have
been reclassified in comparative financial
statements, the segment information for the
discontinued component need not be provided for
those periods. Paragraph 280-10-55-7 addresses
disclosure requirements if a component of a public
entity that is reported as a discontinued
operation is a reportable segment.
ASC 205-20 provides guidance for determining whether a disposal group should be presented as
a discontinued operation in the income statement. A discontinued operation may be a reportable
segment, an operating segment, or a component of an operating segment.
ASC 280-10-55-7 notes that when the discontinued operation is a reportable
segment, an entity is not required to separately disclose information for the
discontinued operation within the segment footnote. However, if the discontinued
operation is only a component of a reportable segment, the entity should not
include the discontinued operation in the disclosures for the reportable segment
but should restate prior periods, beginning in the period in which the component
is presented as a discontinued operation.
We believe that the failure of a disposal to meet the criterion to be presented as a discontinued
operation would not be considered a change in an entity’s internal organization that causes the
composition of its reportable segments to change. Accordingly, prior periods would not need to be
restated.
Example 4-8
Company A has identified the following reportable segments: computer hardware, computer software, and
customer service. Before year-end, A disposed of a portion of its computer hardware segment, and the
disposal does not meet the criterion to be presented as a discontinued operation.
In preparing the current-year segment disclosures, A is not required to restate prior-period segment
information to remove the portion of the computer hardware segment disposed of before year-end or to
quantify the effect in the segment footnote.
4.9.4 Changes After Year-End but Before the Financial Statements Are Issued
The SEC staff made the following observation in its Current Accounting and Disclosure Issues in the
Division of Corporation Finance (updated November 30, 2006) related to what happens when an entity
changes its internal structure after year-end but before the financial statements are issued:
If management changes the structure of its internal organization after fiscal year end, or intends to make a
change, the new segment structure should not be presented in financial statements until operating results
managed on the basis of that structure are reported. Disclosures based on the historical reportable segments
should be presented until financial statements for periods managed on the basis of the new organizational
structure are presented. However, supplemental disclosure of the future effects of the changes may be useful.
See Section
7.5 for more information related to
reporting implications of retrospective
changes.