Chapter 4 — Disclosure Requirements | DART – Deloitte Accounting Research Tool

Chapter 4 — Disclosure Requirements

4.1 Overview

ASC 280 requires both quantitative and qualitative disclosures for each reportable segment. Generally, these disclosures are provided for each period presented. The disclosure requirements in ASC 280 for each reportable segment can be categorized as follows:

General information (see Section 4.2).
Information about profit or loss and assets (see Section 4.3).
Reconciliations (see Section 4.5).

In accordance with the management approach, the disclosures for each reportable segment should be consistent with the information provided to the CODM (see further discussion in Section 4.4).

In addition to disclosures for each reportable segment, an entity must provide certain entity-wide information (see further discussion in Chapter 5).

Key Takeaways

Disclosure of the factors used to identify reportable segments and the basis of organization of the entity give financial statement users important context regarding the management approach to segment disclosures. Such disclosures are particularly important when an entity is organized as a single operating segment.
The measure of profit or loss disclosed for each reportable segment should be the measure used by the CODM to assess performance and allocate resources. This measure may vary by reportable segment.
When there has been a change in reportable segments, corresponding information for earlier periods, including interim periods, must be restated unless restatement is impracticable.
Although an entity is not required to restate its financial information to reflect a change in measurement of segment profit and loss, presentation of all segment information on a comparable basis is preferable if it is practicable.

Changing Lanes

As previously discussed, the FASB issued ASU 2023-07 in November 2023 to improve the information that a public entity discloses about its reportable segments and to address investor requests for more information about reportable segment expenses.

This chapter discusses the disclosure requirements for reportable segments in ASC 280 and highlights how the adoption of ASU 2023-07 will affect them. For additional information about the new disclosure requirements introduced by the ASU related to significant segment expenses and other segment items, see Chapter 6.

4.2 General Information

ASC 280-10

50-21 A public entity shall disclose the following general information (see Example 3, Case A [paragraph 280-10-55-47]):

Factors used to identify the public entity’s reportable segments, including the basis of organization (for example, whether management has chosen to organize the public entity around differences in products and services, geographic areas, regulatory environments, or a combination of factors and whether operating segments have been aggregated)
Types of products and services from which each reportable segment derives its revenues.

Pending Content (Transition Guidance: ASC 280-10-65-1)

50-21 A public entity shall disclose the following general information (see Example 3, Case A [paragraph 280-10-55-47]):

Factors used to identify the public entity’s reportable segments, including the basis of organization (for example, whether management has chosen to organize the public entity around differences in products and services, geographic areas, regulatory environments, or a combination of factors and whether operating segments have been aggregated)
Types of products and services from which each reportable segment derives its revenues.
The title and position of the individual or the name of the group or committee identified as the chief operating decision maker.

An entity must disclose the factors used in the identification of reportable segments as well as the types of products and services from which each reportable segment derives its revenue. Its disclosures should include how management has chosen to organize its business (i.e., by product or service or geography) and whether operating segments have been aggregated. Disclosure about the basis of organization is an important aspect of the management approach to segment reporting because it provides insights into how management has organized the business.

Key Takeaways

In accordance with ASC 280-10-50-21(a), registrants are required to disclose whether operating segments have been aggregated. As discussed in Section 3.2, aggregation of operating segments continues to be a source of SEC comments.

Changing Lanes

ASU 2023-07 introduces significant changes related to disclosures, including requirements for public entities to disclose “[t]he title and position of the individual or the name of the group or committee identified as the chief operating decision maker” (ASC 280-10-50-21(c)) and “[h]ow the [CODM] uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources” (ASC 280-10-50-29(f)). See Chapter 2 for further considerations related to the identification of the CODM.

ASC 280-10-55-47(e) (added by the ASU) provides the following example of a disclosure identifying the CODM:

55-47(e) The title and position of the individual or the group identified as the chief operating decision maker (see paragraph 280-10-50-21(c)).

Diversified Company’s chief operating decision maker is the chief executive officer.

4.2.1 Reporting Considerations for Entities With a Single Reportable Segment

An entity should disclose a single reportable segment if it is (1) organized as a single operating segment or (2) organized as more than one operating segment and (a) elects to aggregate into a single operating segment and (b) meets the criteria for such aggregation (see Section 3.2 for a discussion of aggregation).

The SEC staff continues to stress the importance of the disclosure requirement related to the entity’s basis of organization, particularly when an entity is organized as a single operating segment. At the 2015 AICPA Conference on Current SEC and PCAOB Developments, staff from the SEC’s OCA observed the following:

At times, application of the guidance will result in identification of a single operating segment. When such identification is consistent with the guidance, it can be a significant signal to investors about how management has allocated resources. Upon arriving at this conclusion, registrants should disclose that they allocate resources and assess financial performance on a consolidated basis and should explain the basis for that management approach. It would seem counter to the objectives of segment reporting if the business description indicates the entity is diversified across businesses or products, yet is not managed in a disaggregated way. [Footnote omitted]

An entity with more than one reportable segment is required to disclose, for each reportable segment, the measure of profit or loss used by the CODM to assess performance and allocate resources. See Section 4.3 for additional discussion of segment disclosures.

In some cases, entities with only one reportable segment have disclosed in the notes to their financial statements financial information for which the measurement basis differs from that used in their consolidated financial statements. The SEC staff has challenged such disclosures as being inconsistent with the objective of ASC 280, even if the measures were reviewed by the CODM or the entity’s disclosure is argued to be beneficial to readers (e.g., EBITDA for the entity as a whole or for portions of the entity). Further, as noted by the staff at the 2016 AICPA Conference on Current SEC and PCAOB Developments, the presentation of such measures outside of the financial statements (e.g., in MD&A) would be within the scope of the SEC’s guidance on non-GAAP measures since the disclosure is not required by U.S. GAAP. See Section 7.4 for additional discussion of non-GAAP measures.

4.2.1.1 Changes Introduced by ASU 2023-07

ASC 280-10

50-20 A public entity shall disclose all of the following for each period for which an income statement is presented. However, reconciliations of balance sheet amounts for reportable segments to consolidated balance sheet amounts are required only for each year for which a balance sheet is presented. Previously reported information for prior periods shall be restated as described in paragraphs 280-10-50-34 through 50-35.

Pending Content (Transition Guidance: ASC 280-10-65-1)

50-20 All public entities, including those public entities that have a single reportable segment, shall disclose all of the following for each period for which an income statement is presented. However, reconciliations of balance sheet amounts for reportable segments to consolidated balance sheet amounts are required only for each year for which a balance sheet is presented. Previously reported information for prior periods shall be recast as described in paragraphs 280-10-50-34 through 50-35. (See paragraphs 280-10-55-15D through 55-15F for additional guidance for public entities that have a single reportable segment.)

ASC 280-10

Pending Content (Transition Guidance: ASC 280-10-65-1)

55-15D All public entities, including those public entities that have a single reportable segment, are subject to the requirements of this Topic in its entirety. Paragraph 280-10-50-1(b) states that a characteristic of an operating segment is that it is a component of an entity whose operating results are regularly reviewed by the public entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. Paragraph 280-10-50-4 states that not every part of a public entity is necessarily an operating segment or part of an operating segment; for example, corporate headquarters or certain functional departments may not be part of an operating segment. The entity should evaluate the guidance in paragraph 280-10-50-4 and the definition of an operating segment when identifying its operating segment (or segments) and determining whether that operating segment (or segments) constitutes all or part of the consolidated entity. For example, when a public entity has a single operating segment that constitutes part, but not all, of the consolidated entity, the chief operating decision maker may regularly review the operating results and performance of the operating segment differently than how management assesses the performance of the consolidated entity. Alternatively, when the single operating segment constitutes all of the consolidated entity, the chief operating decision maker may regularly review the entity-wide operating results and performance.

55-15E A public entity that discloses a single reportable segment should identify the measure or measures (in accordance with paragraph 280-10-50-28A) of a segment’s profit or loss that the chief operating decision maker uses in assessing segment performance and deciding how to allocate resources, which may include a profit or loss measure that is not presented on the public entity’s consolidated income statement. For example, the chief operating decision maker of a single reportable segment entity may use both net income and earnings before interest, taxes, depreciation, and amortization as the measures of profit or loss for purposes of assessing segment performance and deciding how to allocate resources. However, earnings before interest, taxes, depreciation, and amortization is not presented on the public entity’s consolidated income statement.

55-15F When the chief operating decision maker of a single reportable segment entity uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, at least one of the reported segment profit or loss measures should be that which management believes is determined in accordance with the measurement principles most consistent with those used in measuring the corresponding amounts in a public entity’s consolidated financial statements and reconciled in accordance with paragraphs 280-10-50-30(b) and 280-10-50-32(f). A single reportable segment entity also may report additional performance measures that are used by the chief operating decision maker in assessing segment performance and deciding how to allocate resources in accordance with paragraphs 280-10-50-28A through 50-28B.

4.2.1.1.1 Single Reportable Segment With One Performance Measure

After the adoption of ASU 2023-07, a public entity that has a single reportable segment should provide all disclosures required by the ASU (e.g., significant segment expenses and other segment items) as well as those required by the existing segment guidance in ASC 280. This means that entities with a single reportable segment would need to provide all the segment disclosures that are required for multiple segment entities. Segment asset disclosure is only required if such information is provided to the CODM at a different asset level or category than the amounts disclosed in the consolidated balance sheet; alternatively, the entity may provide a statement indicating that the CODM does not review segment assets at a different asset level or category.

At the 2023 AICPA & CIMA Conference on Current SEC and PCAOB Developments, SEC Associate Chief Accountant Carlton Tartar indicated that when an entity with a single reportable segment is managed on a consolidated basis, the entity would be expected to conclude that consolidated net income is the measure of segment profit or loss that is most consistent with U.S. GAAP.

We encourage entities to consider discussing with auditors, SEC counsel, or the SEC staff how the staff’s view should be applied in cases in which an entity has a single reportable segment and management concludes that it does not manage the entity on a consolidated basis and may therefore use a measure of segment profit or loss that is not consistent with U.S. GAAP.

Entities with single reportable segments will need to review the information that is regularly provided to the CODM to determine which expenses would need to be separately disclosed and reconciled to consolidated net income as the measure of segment profit or loss. In other words, if the significant expenses are at a different level or category of expense as compared with the consolidated income statement line items, entities will have to separately disclose these significant segment expenses. We believe that if the regularly provided segment expense detail is the same as that included in the consolidated income statement, entities would have a choice of either of the following:

Disclose those expenses as significant segment expenses in the segment footnote.
Include a statement indicating that the CODM is regularly provided with only the consolidated expenses as noted on the face of the income statement (rather than disclosing a detailed reconciliation of significant expenses and other expenses as required by the ASU).

Example 4-1

Company L is a pre-revenue life sciences company and has one operating and reportable segment. The consolidated statement of operations includes research and development expenses, general and administrative costs, interest expense, and income taxes; it does not include any revenue. In addition to reviewing the expenses in the consolidated statement of operations, the CODM is regularly provided with research and development costs for programs A, B, and C, which L has concluded are significant. After adopting ASU 2023-07, L would need to include (1) all the required ASC 280 disclosures and (2) significant expense details of the research and development costs for programs A, B, and C and all the other expenses disclosed in the statement of operations, which together reconcile to the consolidated GAAP measure of net income.

4.2.1.1.2 Single Reportable Segment With Multiple Performance Measures

Upon the adoption of ASU 2023-07, a public entity is allowed, but not required, to disclose more than one measure of segment profit or loss even for a single reportable segment, provided that at least one of the reported measures is the segment profit or loss measure that is most consistent with GAAP measurement principles (the required measure). Therefore, entities that have a single reportable segment and are managed on a consolidated basis may present additional measures of segment profit loss, provided that at least of one the measures is consolidated net income.

In addition to the requirement to reconcile each reported measure to the consolidated financial statements, the requirement to provide significant segment expenses and other segment items would also apply to each of these additional reported measures. A public entity that reports an additional measure for a reportable segment in the current period should disclose this additional measure in the prior comparative periods if it was provided to the CODM in those prior periods. Further, as indicated in ASC 280-10-50-28B (added by ASU 2023-07), “a public entity is not precluded from reporting the additional measure or measures for the prior periods in which the measure or measures were not provided to the [CODM].”

For additional guidance regarding the disclosure of multiple measures of segment profit or loss, see Section 4.4.2.

4.3 Information About Profit or Loss and Assets for Each Reportable Segment

ASC 280-10

50-22 A public entity shall report a measure of profit or loss and total assets for each reportable segment. A public entity also shall disclose all of the following about each reportable segment if the specified amounts are included in the measure of segment profit or loss reviewed by the chief operating decision maker or are otherwise regularly provided to the chief operating decision maker, even if not included in that measure of segment profit or loss (see Example 3, Case B [paragraph 280-10-55-48]):

Revenues from external customers
Revenues from transactions with other operating segments of the same public entity
Interest revenue
Interest expense
Depreciation, depletion, and amortization expense
Unusual items as described in paragraph 220-20-45-1
Equity in the net income of investees accounted for by the equity method
Income tax expense or benefit
Subparagraph superseded by Accounting Standards Update No. 2015-01.
Significant noncash items other than depreciation, depletion, and amortization expense.

A public entity shall report interest revenue separately from interest expense for each reportable segment unless a majority of the segment’s revenues are from interest and the chief operating decision maker relies primarily on net interest revenue to assess the performance of the segment and make decisions about resources to be allocated to the segment. In that situation, a public entity may report that segment’s interest revenue net of its interest expense and disclose that it has done so.

Pending Content (Transition Guidance: ASC 280-10-65-1)

50-22 A public entity shall report a measure of profit or loss and total assets for each reportable segment. A public entity also shall disclose all of the following about each reportable segment if the specified amounts are included in the measure of segment profit or loss reviewed by the chief operating decision maker or are otherwise regularly provided to the chief operating decision maker, even if not included in that measure of segment profit or loss (see Example 3, Case B [paragraph 280-10-55-48]):

Revenues from external customers
Revenues from transactions with other operating segments of the same public entity
Interest revenue
Interest expense
Depreciation, depletion, and amortization expense
Unusual items as described in paragraph 220-20-45-1
Equity in the net income of investees accounted for by the equity method
Income tax expense or benefit
Subparagraph superseded by Accounting Standards Update No. 2015-01.
Significant noncash items other than depreciation, depletion, and amortization expense.

A public entity shall report interest revenue separately from interest expense for each reportable segment unless a majority of the segment’s revenues are from interest and the chief operating decision maker relies primarily on net interest revenue to assess the performance of the segment and make decisions about resources to be allocated to the segment. In that situation, a public entity may report that segment’s interest revenue net of its interest expense and disclose that it has done so. Nonetheless, a public entity shall separately disclose interest expense if it is a significant segment expense in accordance with paragraph 280-10-50-26A.

50-23 Disclosure of interest revenue and interest expense included in reported segment profit or loss is intended to provide information about the financing activities of a segment.

50-24 If a segment is primarily a financial operation, interest revenue probably constitutes most of segment revenues and interest expense will constitute most of the difference between reported segment revenues and reported segment profit or loss. If the segment has no financial operations or only immaterial financial operations, no information about interest is required.

Pending Content (Transition Guidance: ASC 280-10-65-1)

50-24 If a segment is primarily a financial operation, interest revenue probably constitutes most of segment revenues and interest expense will constitute most of the difference between reported segment revenues and reported segment profit or loss. If the segment has no financial operations or only immaterial financial operations, no information about interest is required unless interest expense is a significant segment expense to be disclosed in accordance with paragraph 280-10-50-26A.

An entity must present a measure of profit or loss for each reportable segment. This measure may vary by reportable segment. See Section 4.4 for further discussion of the measurement of segment disclosures.

Further, ASC 280-10-50-22 outlines additional amounts that should be disclosed if such amounts are either of the following:

“[I]ncluded in the measure of segment profit or loss reviewed by the [CODM].”
“[O]therwise regularly provided to the [CODM], even if not included in that measure of segment profit or loss.”

An entity should therefore carefully consider what kind of information is regularly provided to the CODM. ASC 280-10-55-15 states, in part:

[T]he segment profit or loss amounts listed in paragraph 280-10-50-22 are required if they are included in the measure of segment profit or loss that is used by the chief operating decision maker or if they are otherwise regularly provided to the chief operating decision maker, even if not included in that measure. Disclosure of those amounts is required even though they may not be included in the measure of segment profit or loss or in the determination of segment assets, as applicable, that is reviewed by the chief operating decision maker.

Example 4-2

Company A has identified two reportable segments: retail operations and wholesale operations. The measure of profitability used by the CODM is EBITDA. In reviewing the monthly reporting package, the CODM receives information about revenue from external customers and EBITDA by reportable segment. The CODM also receives a schedule of intersegment revenue by reportable segment as well as summaries of depreciation and amortization expense related to each segment. As a result, A would disclose revenue from external customers, intersegment revenue, depreciation and amortization, and EBITDA by reportable segment. Since the other items listed in ASC 280-10-50-22 are not included in the EBITDA profitability measure or otherwise regularly provided to the CODM, A would not be required to disclose them for each reportable segment.

Revenue from external customers should be reported in accordance with the recognition and measurement principles that are consistent with those used in the measurement of the corresponding amounts in the public entity’s consolidated financial statements.

At the 2023 AICPA & CIMA Conference on Current SEC and PCAOB Developments, Deputy Chief Accountant Melissa Rocha provided additional insight into the SEC staff’s views on the required disclosures for reportable segments under ASC 280-10-50-22, noting that such amounts should not deviate from the recognition and measurement principles in U.S. GAAP. For example, she observed that the SEC staff will object to issuers’ disclosures under ASC 280-10-50-22 of amounts they describe as “segment revenues” when such amounts are based on measurement and recognition principles that are inconsistent with U.S. GAAP.

4.3.1 Interest Revenue and Interest Expense

Generally, interest revenue should be reported separately from interest expense. The disclosure requirements are intended to elicit some information about the reportable segment’s financing activities. However, under an exception in ASC 280-10-50-22, net interest revenue may be disclosed when “a majority of the segment’s revenues are from interest and the chief operating decision maker relies primarily on net interest revenue to assess the performance of the segment and make decisions about resources to be allocated to the segment.” In such instances, the entity should also disclose that interest revenue is presented net of interest expense. Paragraph 95 of the Background Information and Basis for Conclusions of FASB Statement 131 further clarifies, stating, in part:

The Board decided that segments that derive a majority of revenue from interest should be permitted to disclose net interest revenue instead of gross interest revenue and gross interest expense if management finds that amount to be more relevant in managing the segment. Information about interest is most important if a single segment comprises a mix of financial and nonfinancial operations. If a segment is primarily a financial operation, interest revenue probably constitutes most of segment revenues and interest expense will constitute most of the difference between reported segment revenues and reported segment profit or loss. If the segment has no financial operations or only immaterial financial operations, no information about interest is required.

In addition, an entity should consider interest expense and interest income on intersegment transactions. ASC 280-10-55-11 states, in part:

For internal reporting purposes, if interest expense is charged to a segment on advances from another segment and the interest is included in the measure of performance, the amounts of interest expense and interest income shall include the amounts charged internally between the segments.

Changing Lanes

Upon adoption of ASU 2023-07, ASC 280-10-50-22 (as amended by the ASU) requires a public entity to “separately disclose interest expense if it is a significant segment expense in accordance with paragraph 280-10-50-26A.” Therefore, an entity that adopts the ASU should provide gross interest expense (i.e., separate from interest income) if it is a significant segment expense in accordance with ASC 280-10-50-26A, even if the entity discloses interest expense as part of net interest income in accordance with ASC 280-10-50-22. See Section 6.2 for further considerations regarding the significant expense principle. As described in paragraph BC76 of the Background Information and Basis for Conclusions of ASU 2023-07:

The Board also observed that the easily computable guidance requires that an entity disclose interest expense in cases in which a CODM is regularly provided with information about interest revenue and net interest margin. The Board concluded that this outcome will result in equivalent application of the significant expense principle between financial segments and nonfinancial segments.

4.3.2 Specific Asset Information for Each Reportable Segment

ASC 280-10

50-25 A public entity shall disclose both of the following about each reportable segment if the specified amounts are included in the determination of segment assets reviewed by the chief operating decision maker or are otherwise regularly provided to the chief operating decision maker, even if not included in the determination of segment assets:

The amount of investment in equity method investees
Total expenditures for additions to long-lived assets other than any of the following (see Example 3, Case B [paragraph 280-10-55-48]):
1. Financial instruments
2. Long-term customer relationships of a financial institution
3. Mortgage and other servicing rights
4. Deferred policy acquisition costs
5. Deferred tax assets.

50-26 If no asset information is provided for a reportable segment, that fact and the reason therefore shall be disclosed.

In some situations, the CODM receives no asset information by reportable segment or receives asset information unrelated to the items listed in ASC 280-10-50-25. The disclosure requirements for the specific asset information listed in ASC 280-10-50-25 are applicable only when the specified amounts are included in the segment assets reviewed by the CODM or the CODM receives such information. See Appendix B for our comprehensive example of a disclosure of information about reported segment profit or loss and segment assets.

4.4 Measurement of Segment Disclosures

ASC 280-10

50-27 The amount of each segment item reported shall be the measure reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segment and assessing its performance. Adjustments and eliminations made in preparing a public entity’s general-purpose financial statements and allocations of revenues, expenses, and gains or losses shall be included in determining reported segment profit or loss only if they are included in the measure of the segment’s profit or loss that is used by the chief operating decision maker. Similarly, only those assets that are included in the measure of the segment’s assets that is used by the chief operating decision maker shall be reported for that segment. If amounts are allocated to reported segment profit or loss or assets, those amounts shall be allocated on a reasonable basis.

Under the management approach prescribed in ASC 280-10-50-27, the amount of each segment item reported is the measure used by the CODM to assess performance and allocate resources. This notion is further articulated in paragraph 81 of the Background Information and Basis for Conclusions of FASB Statement 131, which states, in part:

The Board decided that the information to be reported about each segment should be measured on the same basis as the information used by the chief operating decision maker for purposes of allocating resources to segments and assessing segments’ performance. . . . The Board does not think that a separate measure of segment profit or loss or assets should have to be developed solely for the purpose of disclosing segment information. For example, an enterprise that accounts for inventory using a specialized valuation method for internal purposes should not be required to restate inventory amounts for each segment, and an enterprise that accounts for pension expense only on a consolidated basis should not be required to allocate pension expense to each operating segment.

Note that financial measures that a registrant must disclose under U.S. GAAP are not considered non-GAAP measures under the SEC’s guidance (see Section 7.4 for further discussion). However, the SEC staff has objected to the reporting of segment items determined to be based on individually tailored accounting principles (see Section 4.3.3 of Deloitte’s Roadmap Non-GAAP Financial Measures and Metrics).

4.4.1 Allocation of Items to Reportable Segments

ASC 280 does not require an entity to allocate to a reportable segment items that are not directly linked to that segment unless the entity allocates them as part of preparing the reports used by the CODM. Examples of such items include costs associated with (1) entity-wide employee benefit plans or (2) income taxes when the entity files a consolidated income tax return. If items are allocated for use by the CODM, the amounts included in the segment disclosures should reflect these allocations.

For example, an entity that reports interest expense only on a consolidated basis would not include an interest expense amount in the segment footnote. Conversely, if interest expense were allocated to the various segments in the reports used by the CODM, such amounts should be included in the segment footnote. Any unallocated amounts, if material, should be reported in the required reconciliation to the consolidated amounts.

Although U.S. GAAP does not provide guidance on allocation methods, any allocation made for segment reporting purposes must be reasonable. For example, allocating pension costs to segments whose employees do not participate in the pension plan would not appear to be reasonable. In addition, the nature of any allocations to an operating segment should be disclosed.

Changing Lanes

As stated in paragraph BC84 of ASU 2023-07, the Board “acknowledges that differences between segment measurements and consolidated amounts may be attributable to an entity’s allocation of centrally incurred expenses.” The Board further states that it “observed that the guidance does not specifically require that an entity disclose the methods used to allocate expenses to the segments or the nature of changes in those expense allocation methods from prior periods.”

4.4.2 Multiple Measures Used by the CODM

ASC 280-10

50-28 If the chief operating decision maker uses only one measure of a segment’s profit or loss and only one measure of a segment’s assets in assessing segment performance and deciding how to allocate resources, segment profit or loss and assets shall be reported at those measures. If the chief operating decision maker uses more than one measure of a segment’s profit or loss and more than one measure of a segment’s assets, the reported measures shall be those that management believes are determined in accordance with the measurement principles most consistent with those used in measuring the corresponding amounts in the public entity’s consolidated financial statements.

Pending Content (Transition Guidance: ASC 280-10-65-1)

50-28 If the chief operating decision maker uses only one measure of a segment’s assets in assessing segment performance and deciding how to allocate resources, segment assets shall be reported at that measure. If the chief operating decision maker uses more than one measure of a segment’s assets, the reported measure shall be that which management believes is determined in accordance with the measurement principles most consistent with those used in measuring the corresponding amounts in the public entity’s consolidated financial statements.

50-28A If the chief operating decision maker uses only one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, segment profit or loss shall be reported at that measure. If the chief operating decision maker uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures of segment profit. However, at least one of the reported segment profit or loss measures (or the single reported measure, if only one is disclosed) shall be that which management believes is determined in accordance with the measurement principles most consistent with those used in measuring the corresponding amounts in a public entity’s consolidated financial statements.

50-28B If a public entity discloses more than one measure of a segment’s profit or loss in the current period, it shall report the additional measure or measures for the prior periods in which the measure or measures were provided to the chief operating decision maker. For example, if a public entity reports an additional measure in the current period for gross profit for a reportable segment, it should disclose gross profit for the reportable segment in the prior comparative periods if gross profit was provided to the chief operating decision maker in those periods. A public entity is not precluded from reporting the additional measure or measures for the prior periods in which the measure or measures were not provided to the chief operating decision maker.

50-28C The disclosure requirements in paragraphs 280-10-50-22 through 50-24, paragraphs 280-10-50-26A through 50-26C, and paragraph 280-10-50-29 apply to each reported measure of a segment’s profit or loss. The reconciliation requirement in paragraph 280-10-50-30(a) applies to the total of the reportable segments’ revenues to a public entity’s consolidated revenues. The reconciliation requirement in paragraph 280-10-50-30(b) applies to the total of the reportable segments’ amount for each measure of profit or loss.

55-9 If a public entity uses multiple performance measures in evaluating segment performance and allocating assets, the reported measures shall be those that management believes are determined in accordance with the measurement principles most consistent with those used in measuring the corresponding amounts in the public entity’s consolidated financial statements (see paragraphs 280-10-50-27 through 50-29). Preparing segment information in accordance with the GAAP used at the consolidated level would be difficult because some GAAP are not intended to apply at a segment level. Examples include accounting for income taxes in a public entity that files a consolidated income tax return.

Pending Content (Transition Guidance: ASC 280-10-65-1)

55-9 Paragraph superseded by Accounting Standards Update No. 2023-07.

55-10 Entities may use multiple performance measures in evaluating segment performance and allocating resources including both pretax and after-tax measures. Because it may not always be practicable to apply GAAP relating to income taxes to the segment level, after-tax segment measures are not typically in accordance with GAAP. Therefore, either a pretax or after-tax measure could be used for reporting segment information, with disclosure of the difference in measurement principles for determining taxes, if an after-tax measure is used. However, if the after-tax measures are determined on the same basis as the consolidated financial statements, the after-tax measure would be the preferable measure of segment profit or loss to report.

Pending Content (Transition Guidance: ASC 280-10-65-1)

55-10 Paragraph superseded by Accounting Standards Update No. 2023-07.

Sometimes the CODM may receive a single profit or loss metric for internal reporting purposes whose measurement basis may be consistent with or different from the basis used in the consolidated financial statements. In other instances, multiple measures of profit or loss or assets may be used by the CODM. In such cases, the measures presented should be those that most closely reflect the measurement principle applied to the consolidated financial statements. For example, if the CODM receives GAAP operating profit and EBITDA, ASC 280-10-50-28 requires that the disclosed measure be GAAP operating profit since it would be the measure closest to the measures used in the U.S. GAAP–based consolidated financial statements.

Example 4-3

Company A operates a chain of grocery stores and uses the LIFO method to calculate inventory and cost of goods sold for financial reporting purposes. However, since the reports provided to the CODM use the FIFO method to evaluate the performance of segment operations, A may use LIFO for U.S. GAAP financial reporting and FIFO for operating segment reporting because both FIFO and LIFO methods are both acceptable inventory methods under U.S. GAAP.

Example 4-4

EBITDA is the measure of segment profit or loss that Company A uses to evaluate performance and make decisions about the allocation of resources. Company A also provides the CODM with a full reconciliation of EBITDA to net income by segment.

Accordingly, A would not be permitted to use EBITDA as its sole measure of profit or loss in its segment disclosures. When the CODM receives all the reconciling items that separate, by segment, EBITDA from net income and a total for net income (i.e., a full reconciliation to net income), it is assumed that the CODM uses that information to assess performance and allocate resources. As stated in ASC 280-10-50-28, if more than one measure of a segment’s profit or loss is reported, the measure that should be reported in the segment disclosure is the one that is most consistent with U.S. GAAP. In A’s case, net income would appear to be that measure.

However, use of EBITDA as the sole measure of segment profit or loss may be appropriate if a full reconciliation of EBITDA to net income by segment is not provided to the CODM. For example, if the CODM receives a partial reconciliation that includes only depreciation, amortization, and interest expense, the use of EBITDA for segment reporting purposes would appear to be appropriate.

Changing Lanes

Upon the adoption of ASU 2023-07, a public entity is allowed, but not required, to disclose more than one measure of segment profit or loss provided that at least one of the reported measures is the segment profit or loss measure that is most consistent with GAAP measurement principles (the required measure).

In addition to reconciling each reported measure to the consolidated financial statements, ASU 2023-07 requires an entity that discloses multiple measures of a segment’s profit or loss to provide all existing disclosures about the segment’s profit or loss as well as about segment assets, if such information is provided to the CODM. The new requirement to provide significant segment expenses and other segment items also applies to each of these additional reported measures. A public entity that reports an additional measure for a reportable segment in the current period should disclose this additional measure in the prior comparative periods if it was provided to the CODM in those prior periods. Further, as indicated in ASC 280-10-50-28B (added by the ASU), “a public entity is not precluded from reporting the additional measure or measures for the prior periods in which the measure or measures were not provided to the [CODM].”

The graphic below illustrates the ASU’s requirements when a public entity discloses multiple measures of a segment’s profit or loss.

During the 2023 AICPA & CIMA Conference on Current SEC and PCAOB Developments, the SEC stated that its staff does not believe that such additional measures are required or expressly permitted by GAAP (since the ASU does not identify specific measures that may be disclosed, such as EBITDA). The SEC indicated that such measures would therefore be considered non-GAAP measures. We believe that financial statement users may find it difficult to evaluate whether a non-GAAP measure is misleading in the context of Regulation G; Regulation S-K, Item 10; or the Non-GAAP C&DIs. Further, the SEC encouraged registrants that choose to include additional measures that are not determined in accordance with U.S. GAAP, to reach out to the SEC to discuss their plans.

Additional measures included in the financial statement footnotes would be subject to management’s assessment of internal control over financial reporting and external audit procedures. Registrants are encouraged to consult with their auditors, SEC counsel, or the SEC staff if they intend to disclose additional measures that are not consistent with U.S. GAAP.

The examples below illustrate these concepts for a registrant with more than one reportable segment. Note, however, that the guidance in this area is subject to change and registrants should continue to watch for announcements or further guidance from the SEC staff. See Section 7.4 for further details on non-GAAP measures and SEC reporting implications.

Example 4-5

Facts

Company C has two segments. Its CODM uses the measure(s) discussed in each scenario below to assess segment performance and allocate resources to its segments.

Scenario 1 — One Measure of Segment Profit and Loss

Company C’s CODM regularly reviews segment EBITDA to assess segment performance and allocate resources and does not use other measures of segment profit or loss. Company C identifies segment EBITDA as the required measure of segment profit and loss. Segment EBITDA for each segment would not be considered a non-GAAP measure because it must be disclosed in accordance with ASC 280. However, in a manner consistent with the interpretation in Question 104.04 of the SEC staff’s C&DIs related to non-GAAP financial measures, presentation of total segment EBITDA or consolidated EBITDA “in any context other than the . . . required [segment footnote] reconciliation . . . would be the presentation of a non-GAAP financial measure.”

Scenario 2 — Multiple Measures of Segment Profit and Loss That Are Consistent With GAAP

Company C’s CODM regularly reviews GAAP gross profit and GAAP operating profit to assess segment performance and allocate resources. Company C identifies GAAP operating profit as the required measure of segment profit and loss. Further, C concludes that GAAP gross profit is fully burdened and has been determined in a manner consistent with GAAP measurement principles. Therefore, disclosure of segment gross profit and operating profit would be consistent with ASC 280 (as amended by ASU 2023-07), and neither would be subject to the SEC’s non-GAAP rules and regulations.

Scenario 3 — Multiple Measures of Segment Profit and Loss, Some of Which Are Not Consistent With GAAP

Company C’s CODM regularly reviews GAAP operating profit and segment EBITDA to assess segment performance and allocate resources. Company C identifies GAAP operating profit as the required measure of segment profit and loss. Segment EBITDA would be considered an additional measure that may be disclosed under ASC 280 (upon adoption of ASU 2023-07); however, such a disclosure is not required. Therefore, disclosure of segment EBITDA, total segment EBITDA, or consolidated EBITDA would be subject to the SEC’s non-GAAP rules and regulations. Registrants are encouraged to consult with their auditors, SEC counsel, or the SEC staff if they intend to disclose additional measures that are not consistent with GAAP.

4.4.3 Explanation of Segment Profit or Loss and Segment Assets

ASC 280-10

50-29 A public entity shall provide an explanation of the measurements of segment profit or loss and segment assets for each reportable segment. At a minimum, a public entity shall disclose all of the following (see Example 3, Cases A through C [paragraphs 280-10-55-47 through 55-49]):

The basis of accounting for any transactions between reportable segments.
The nature of any differences between the measurements of the reportable segments’ profits or losses and the public entity’s consolidated income before income taxes and discontinued operations (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). Those differences could include accounting policies and policies for allocation of centrally incurred costs that are necessary for an understanding of the reported segment information.
The nature of any differences between the measurements of the reportable segments’ assets and the public entity’s consolidated assets (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). Those differences could include accounting policies and policies for allocation of jointly used assets that are necessary for an understanding of the reported segment information.
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.
The nature and effect of any asymmetrical allocations to segments. For example, a public entity might allocate depreciation expense to a segment without allocating the related depreciable assets to that segment.

Pending Content (Transition Guidance: ASC 280-10-65-1)

50-29 A public entity shall provide an explanation of the measurements of segment profit or loss and segment assets for each reportable segment. A public entity shall disclose all of the following (see Example 3, Cases A through C [paragraphs 280-10-55-47 through 55-50] and Example 4, Cases A through B [paragraphs 280-10-55-53 through 55-55]):

The basis of accounting for any transactions between reportable segments.
The nature of any differences between the measurements of the reportable segments’ profits or losses and the public entity’s consolidated income before income taxes and discontinued operations (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). Those differences could include accounting policies and policies for allocation of centrally incurred costs that are necessary for an understanding of the reported segment information.
The nature of any differences between the measurements of the reportable segments’ assets and the public entity’s consolidated assets (if not apparent from the reconciliations described in paragraphs 280-10-50-30 through 50-31). Those differences could include accounting policies and policies for allocation of jointly used assets that are necessary for an understanding of the reported segment information.
The nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss, 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, and the effect, if any, of those changes on the measure of segment profit or loss.
The nature and effect of any asymmetrical allocations to segments. For example, a public entity might allocate depreciation expense to a segment without allocating the related depreciable assets to that segment.
How the chief operating decision maker uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.

If a public entity discloses a segment performance measure that is not consistent across its segments, the entity should provide a description of how segment performance is measured for each reportable segment. See Appendix B for our comprehensive example of a disclosure of descriptive information about reportable segments.

Changing Lanes

Under ASC 280-10-50-29(f) (added by ASU 2023-07), public entities are required to disclose “[h]ow the [CODM] uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources.” This new disclosure must be provided for each reported measure of segment profit or loss used by the CODM to assess a segment’s performance and determine how to allocate resources among segments.

The ASU also amends ASC 280-10-50-29(d) to require public entities to disclose “[t]he nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss, 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.”

Example 4-6

Company F’s CODM uses both GAAP gross profit and GAAP operating profit in assessing each segment’s performance and determining how to allocate resources among segments. Company F has early adopted ASU 2023-07 and has decided to provide disclosures for both measures of segments’ profit or loss. To comply with the new requirement in ASC 280-10-50-29(f), F provides the following disclosure:

The CODM uses GAAP gross profit to evaluate segment margin profitability because it provides insight into product pricing.

The CODM uses GAAP operating profit predominantly in the annual budget and forecasting process. The CODM considers budget-to-actual variances on a monthly basis for GAAP operating profit when making decisions about allocating capital and personnel to the segments.

Both GAAP gross profit and GAAP operating profit are regularly reviewed by the CODM in competitive analysis by benchmarking to F’s competitors. The competitive analysis and the monitoring of budgeted versus actual results are used in assessing performance of the segment and in establishing management’s compensation.

4.4.4 Proportionate Consolidation Used to Measure Performance of an Equity Investee

ASC 280-10

55-8 In measuring the performance of its equity investees, proportionate consolidation shall be used for reporting segment information if that is the way in which such information is reviewed by the chief operating decision maker. . . . If proportionate consolidation is used for segment reporting, this Subtopic also requires disclosure of the accounting policy followed for segment reporting (see paragraph 280-10-50-29(b)), the elimination of the investee’s revenues and assets in reconciling to consolidated results (see paragraphs 280-10-50-30 through 50-31), and the investment in and equity income from the investee (see paragraphs 280-10-50-22(g) and 280-10-50-25(a)). Even though the proportionate consolidation method may be used for internal reporting purposes (and thus for external reporting of segment information), that method is not permitted for purposes of preparing general-purpose financial statements in accordance with generally accepted accounting principles (GAAP) except where it is established industry practice (for example, in some oil and gas venture accounting).

Financial information about equity method investments should be disclosed in a manner consistent with the management approach the CODM receives and uses in assessing performance and allocating resources. Proportionate consolidation may be used to account for undivided interests in assets and liabilities as well as investments in unincorporated legal entities, such as partnerships, in certain industries (e.g., construction and extractive) (see Section 2.4.3 of Deloitte’s Roadmap Equity Method Investments and Joint Ventures for more information). ASC 280-10-55-8 requires an entity to disclose the accounting policy it follows for “segment reporting (see paragraph 280-10-50-29(b)), the elimination of the investee’s revenues and assets in reconciling to consolidated results (see paragraphs 280-10-50-30 through 50-31), and the investment in and equity income from the investee (see paragraphs 280-10-50-22(g) and 280-10-50-25(a)).” Entities should also consider whether additional disclosures are necessary to make sure that the financial information they present about the investee is not misleading. Section 2.8 discusses equity method investees and whether an equity method investee can be considered a reportable segment.

4.5 Reconciliations

ASC 280-10

50-30 A public entity shall provide reconciliations of all of the following (see Example 3, Case C [paragraphs 280-10-55-49 through 55-50]):

The total of the reportable segments’ revenues to the public entity’s consolidated revenues.
The total of the reportable segments’ measures of profit or loss to the public entity’s consolidated income before income taxes and discontinued operations. However, if a public entity allocates items such as income taxes to segments, the public entity may choose to reconcile the total of the segments’ measures of profit or loss to consolidated income after those items.
The total of the reportable segments’ assets to the public entity’s consolidated assets.
The total of the reportable segments’ amounts for every other significant item of information disclosed to the corresponding consolidated amount. For example, a public entity may choose to disclose liabilities for its reportable segments, in which case the public entity would reconcile the total of reportable segments’ liabilities for each segment to the public entity’s consolidated liabilities if the segment liabilities are significant.

Pending Content (Transition Guidance: ASC 280-10-65-1)

50-30 A public entity shall provide reconciliations of all of the following (see Example 3, Cases B and C [paragraphs 280-10-55-48 through 55-50] and Example 4, Case B [paragraph 280-10-55-55]):

The total of the reportable segments’ revenues to the public entity’s consolidated revenues.
The total of the reportable segments’ amount for each measure of profit or loss to the public entity’s consolidated income before income taxes and discontinued operations. However, if a public entity allocates items such as income taxes to segments, the public entity may choose to reconcile the total of the segments’ measures of profit or loss to consolidated income after those items.
The total of the reportable segments’ assets to the public entity’s consolidated assets.
The total of the reportable segments’ amounts for every other significant item of information disclosed to the corresponding consolidated amount (except for the segment disclosures required by paragraphs 280-10-50- 26A through 50-26B). For example, a public entity may choose to disclose liabilities for its reportable segments, in which case the public entity would reconcile the total of reportable segments’ liabilities for each segment to the public entity’s consolidated liabilities if the segment liabilities are significant.

50-31 All significant reconciling items shall be separately identified and described. For example, the amount of each significant adjustment to reconcile accounting methods used in determining segment profit or loss to the public entity’s consolidated amounts shall be separately identified and described.

Reconciliations for income statement amounts should be performed for each period presented. However, as noted in ASC 280-10-50-20, “reconciliations of balance sheet amounts for reportable segments to consolidated balance sheet amounts are required only for each year for which a balance sheet is presented.”

Example 4-7

Company G has two reportable segments, A and B. The CODM regularly reviews EBITDA to assess segment performance and allocate resources. Company G presents the reconciliation below of segment EBITDA to profit before income tax.

Company G should reconcile the subtotal of segment EBIDTA, $1,200, and not present consolidated EBITDA after the unallocated corporate expenses because SEC Regulation S-K, Rule 10(e)(1)(ii)(C), precludes non-GAAP measures in the financial statements or financial statement footnotes. Because segment EBITDA is the measure of segment profit or loss used by the CODM, G should not allocate depreciation and amortization and interest to Segments A and B by using a subtotal since this would create another non-GAAP measure.

Changing Lanes

ASC 280-10-50-30(b), as amended by ASU 2023-07, requires a public entity to reconcile the “amount for each measure of profit or loss to the public entity’s consolidated income before income taxes and discontinued operations.”

4.6 Cash Flow Information

ASC 280-10

45-1 This Subtopic does not require that a public entity report segment cash flow. However, paragraphs 280-10-50-22 and 280-10-50-25 require that a public entity report certain items that may provide an indication of the cash-generating ability or cash requirements of an entity’s operating segments.

As noted in paragraph 94 of the Background Information and Basis for Conclusions of FASB Statement 131:

The Board decided to require disclosure of significant noncash items included in the measure of segment profit or loss and information about total expenditures for additions to long-lived segment assets (other than financial instruments, long-term customer relationships of a financial institution, mortgage and other servicing rights, deferred policy acquisition costs, and deferred tax assets) if that information is reported internally because it improves financial statement users’ abilities to estimate cash-generating potential and cash requirements of operating segments.

4.7 Comprehensive Example — Before Adoption of ASU 2023-07

ASC 280-10-55-46 through 55-50 illustrate the disclosures outlined in ASC 280.

ASC 280-10

Example 3: Illustrative Disclosures

55-46 . . . The following Cases are for a single hypothetical public entity referred to as Diversified Company.

Case A: Disclosure of Descriptive Information About Reportable Segments

55-47 The following is an example of the disclosure of descriptive information about a public entity’s reportable segments. (References to paragraphs in which the relevant requirements appear are given in parentheses.)

Description of the types of products and services from which each reportable segment derives its revenues (see paragraph 280-10-50-21(b)).
Diversified Company has five reportable segments: auto parts, motor vessels, software, electronics, and finance. The auto parts segment produces replacement parts for sale to auto parts retailers. The motor vessels segment produces small motor vessels to serve the offshore oil industry and similar businesses. The software segment produces application software for sale to computer manufacturers and retailers. The electronics segment produces integrated circuits and related products for sale to computer manufacturers. The finance segment is responsible for portions of the company’s financial operations including financing customer purchases of products from other segments and real estate lending operations in several states.
Measurement of segment profit or loss and segment assets (see paragraph 280-10-50-29).
The accounting policies of the segments are the same as those described in the summary of significant accounting policies except that pension expense for each segment is recognized and measured on the basis of cash payments to the pension plan. Diversified Company evaluates performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses and foreign exchange gains and losses.
Diversified Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current market prices.
Factors management used to identify the public entity’s reportable segments (see paragraph 280-10-50-21(a)).
Diversified Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies. Most of the businesses were acquired as a unit, and the management at the time of the acquisition was retained.

Case B: Information About Reported Segment Profit or Loss and Segment Assets

55-48 The following table illustrates a suggested format for presenting information about reported segment profit or loss and segment assets (see paragraphs 280-10-50-22 and 280-10-50-25). The same type of information is required for each year for which an income statement is presented. Diversified Company does not allocate income taxes or unusual items to segments. In addition, not all segments have significant noncash items other than depreciation and amortization in reported profit or loss. The amounts in this Example are assumed to be the amounts in reports used by the chief operating decision maker.

Case C: Reconciliations of Reportable Segment Revenues, Profit or Loss, and Assets, to the Consolidated Totals

55-49 The following are examples of reconciliations of reportable segment revenues, profit or loss, and assets to the public entity’s consolidated totals (see paragraph 280-10-50-30(a) through (c)). Reconciliations also are required to be shown for every other significant item of information disclosed (see paragraph 280-10-50-30(d)). For example, if Diversified Company disclosed segment liabilities, they are required to be reconciled to total consolidated liabilities. The public entity’s financial statements are assumed not to include discontinued operations. As discussed in the illustration in paragraph 280-10-55-47, the public entity recognizes and measures pension expense of its segments based on cash payments to the pension plan, and it does not allocate certain items to its segments.

55-50 The reconciling item to adjust expenditures for assets is the amount of expenses incurred for the corporate headquarters building, which is not included in segment information. None of the other adjustments are significant.

Changing Lanes

Comprehensive Example — After Adoption of ASU 2023-07

ASU 2023-07 amends the required disclosures for reportable segments discussed in the FASB’s illustrative example above. See Appendix B for our comprehensive illustration of the disclosures required after the adoption of the ASU.

4.8 Interim Period Information

ASC 280-10

50-32 A public entity shall disclose all of the following about each reportable segment in condensed financial statements of interim periods:

Revenues from external customers
Intersegment revenues
A measure of segment profit or loss
Total assets for which there has been a material change from the amount disclosed in the last annual report
A description of differences from the last annual report in the basis of segmentation or in the basis of measurement of segment profit or loss
A reconciliation of the total of the reportable segments’ measures of profit or loss to the public entity’s consolidated income before income taxes and discontinued operations. However, if a public entity allocates items such as income taxes to segments, the public entity may choose to reconcile the total of the segments’ measures of profit or loss to consolidated income after those items. Significant reconciling items shall be separately identified and described in that reconciliation.

Pending Content (Transition Guidance: ASC 280-10-65-1)

50-32 A public entity shall disclose all of the following about each reportable segment in condensed financial statements of interim periods:

a. Subparagraph superseded by Accounting Standards Update No. 2023-07.

b. Subparagraph superseded by Accounting Standards Update No. 2023-07.

c. Subparagraph superseded by Accounting Standards Update No. 2023-07.

d. Subparagraph superseded by Accounting Standards Update No. 2023-07.

e. A description of differences from the last annual report in the basis of segmentation or in the basis of measurement of segment profit or loss

ee. The segment information required by paragraphs 280-10-50-22 through 50-26C and 280-10-50-28A through 50-28B

f. A reconciliation of the total of the reportable segments’ amount for each measure of profit or loss, including the total of the reportable segments’ amount for any additional measure of profit or loss disclosed in accordance with paragraph 280-10-50-28A, to the public entity’s consolidated income before income taxes and discontinued operations. However, if a public entity allocates items such as income taxes to segments, the public entity may choose to reconcile the total of the segments’ measures of profit or loss to consolidated income after those items. Significant reconciling items shall be separately identified and described in that reconciliation.

50-33 Interim disclosures are required for the current quarter and year-to-date amounts. Paragraph 270-10-50-1 states that when summarized financial data are regularly reported on a quarterly basis, the information in the previous paragraph with respect to the current quarter and the current year-to-date or the last 12 months to date should be furnished together with comparable data for the preceding year.

Pending Content (Transition Guidance: ASC 280-10-65-1)

50-33 Interim disclosures are required for the current quarter and year-to-date amounts. The information in paragraph 280-10-50-32 with respect to the current quarter and the current year-to-date or the last 12 months to date should be furnished together with comparable data for the preceding year.

When issuing interim financial statements, entities are permitted to provide reduced disclosures in condensed financial statements. Entity-wide disclosures are not required for interim periods; however, if a public entity had material changes to such disclosures, including entity-wide disclosures, management should consider providing the disclosures required by ASC 280-10-50-42. If changes are made to any entity’s reportable segments or an immaterial segment becomes material, management should consider recasting requirements as described in Section 4.9.

Changing Lanes

Under ASU 2023-07, entities must apply all the current annual disclosure requirements in ASC 280 on an interim basis, except for entity-wide disclosures, in addition to the new requirements added by the ASU. This means that public entities must disclose significant segment expenses and other segment items, as well as all existing segment information about profit or loss, on an annual and interim basis. Such disclosures include information that must be provided annually in accordance with ASC 280-10-50-22 through 50-26C (e.g., a measure of a segment’s profit or loss and total assets, interest revenue and interest expense, depreciation and amortization expense). In paragraph BC77 of the ASU, the FASB indicates that it expects this new interim disclosure requirement to “result in more timely decision-useful information for users without placing significant additional burden on preparers because the interim segment information is generally expected to be available from an entity’s existing financial systems and records.”

The chart below illustrates the segment reporting disclosures that a public entity must provide on an interim basis upon its adoption of ASU 2023-07.

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.

4.10 Materiality Considerations in Segment Disclosure

Evaluating materiality with respect to segment information is a key step in the preparation of segment reporting disclosures. SAB Topic 1.M (SAB 99) states the following with respect to segment information:

The materiality of a misstatement may turn on where it appears in the financial statements. For example, a misstatement may involve a segment of the registrant’s operations. In that instance, in assessing materiality of a misstatement to the financial statements taken as a whole, registrants and their auditors should consider not only the size of the misstatement but also the significance of the segment information to the financial statements taken as a whole. “A misstatement of the revenue and operating profit of a relatively small segment that is represented by management to be important to the future profitability of the entity” is more likely to be material to investors than a misstatement in a segment that management has not identified as especially important. In assessing the materiality of misstatements in segment information — as with materiality generally —

situations may arise in practice where the auditor will conclude that a matter relating to segment information is qualitatively material even though, in his or her judgment, it is quantitatively immaterial to the financial statements taken as a whole. [Footnotes omitted]

We believe that information that is not material to the consolidated financial statements may be material to the segment footnote. Any item of operating segment information would be considered material if its omission could change a user’s decisions related to the operating segments so significantly that it could also change the user’s decisions related to the consolidated entity. When assessing the materiality of the operating segment amounts, an entity should consider both (1) the nature of the entity’s operations and the industries in which it operates (particular amounts may be focused on in certain industries) and (2) whether management considers the specific item to be important in assessing the company’s future profitability and prospects for future cash flows. Evaluations of materiality should be based on each specific set of facts and circumstances.