Under Segment Reporting, a public entity is required to disclose entity-wide and segment information in the notes to financial statements. However, in recent days, investors have observed that there has been limited information reported about segment’s expenses.
In this regard, the Financial Accounting Standards Board (FASB) issued a final Accounting Standard Update (ASU) that improves the disclosures about a public entity’s reportable segments and addresses requests from investors and other allocators of capital for additional and more detailed information about a reportable segments expense.
The key amendments are as follows:
Significant Expense Categories: Public entities should disclose significant segment expenses that are regularly provided to the Chief Operating Decision Maker (CODM) and included within each reported measure of segment profit or loss.
Other segment items: Public entity needs to disclose an amount for other segment items by the reportable segment and a description of its composition. The category of other segment items represents the variance between segment revenue and the significant disclosed expenses, compared to each reported metric of segment profit or loss.
Interim period disclosures: Disclosures regarding a reportable segment’s profit or loss and assets are to be provided on an annual and interim basis.
Multiple measures of a segment’s profit or loss: If the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, then the public entity could report one or more of such additional measures of segment profit. However, at least one of the reported segment profit or loss measures should be the measure that is most consistent with the measurement principles used in measuring the corresponding amounts in the public entity’s consolidated financial statements.
CODM use of reported measures of segment profit or loss: Public entities are now required to provide a narrative explanation of how the CODM uses each reported measure of segment’s profit or loss in assessing segment performance and deciding how to allocate resources.
CODM’ Title and position: Public entities are required to disclose the title and position of the individual or the name of the group or committee identified as the CODM.
SW Point of View: This Amendment addresses the demand for more detailed segment expense information enhancing transparency for investors and allocators of capital. The amendments encourage comprehensive reporting and understanding of a public entity’s reportable segments and their financial performance.
