1. The Accounting Standards Codification is amended as described in paragraphs 2–7. In some cases, to put the change in context, not only are the amended paragraphs shown but also the preceding and following paragraphs. Terms from the Master Glossary are in bold type. Added text is underlined, and deleted text is

struck out

.

BC1. The following summarizes the Board’s considerations in reaching the conclusions in this Update. It includes reasons for accepting certain approaches and rejecting others. Individual Board members gave greater weight to some factors than to others.

BC2. Investors, lenders, creditors, and other allocators of capital (collectively, “investors”) have observed that segment information is critically important in understanding a public entity’s different business activities. That information enables investors to better understand an entity’s overall performance and assists in assessing potential future cash flows.

BC3. Feedback on the Post-Implementation Review (PIR) Report on FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, which was issued in 2012, indicated overall support from stakeholders for the management approach to segment reporting. That report stated that investors were generally satisfied with the segment note disclosures. A minority of investor survey respondents, approximately one-third, indicated that they were somewhat dissatisfied. Those investors were interested in exploring ways to require additional disclosures about segment information by public entities. Practitioner and academic survey respondents were interested in exploring additional guidance for determining and aggregating segments.

BC4. In 2016, the Board obtained additional feedback from stakeholders on the Invitation to Comment, Agenda Consultation, about the major areas of financial reporting in need of improvement. Investors expressed continued support for the management approach to segment reporting; however, many investors indicated that they would prefer that public entities report more segment information. To address those suggestions, the Board decided to undertake a project in 2017 to improve the segment disclosure requirements. The Board evaluated different ways in which the guidance could be changed to be responsive to that feedback. After narrowing the potential approaches, additional investor outreach was performed that indicated support for enhancing the disclosures about a public entity’s segment expense information because many investors indicated that this information would be useful for them when performing financial modeling. Accordingly, the Board decided to focus on amendments that would result in (a) additional information about a public entity’s significant segment expenses and (b) more timely and detailed segment information being reported throughout the fiscal period. Additionally, in response to the Board’s 2021 Invitation to Comment, Agenda Consultation, stakeholders continued to express support for the additional segment disclosures being developed in this project.

BC5. On October 6, 2022, the Board issued proposed Accounting Standards Update, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, for public comment with the comment period ending on December 20, 2022. The Board received 37 comment letters. During the exposure period, additional outreach with investors was performed. Overall, comment letter respondents and outreach participants supported the Board’s efforts to enhance the disclosures about a public entity’s reportable segments and agreed that the amendments as proposed would produce decision-useful information and that the amendments are operable. The Board considered investors’ and other stakeholders’ feedback in reaching the conclusions in this Update, as discussed below.

BC6. Topic 280 provides public entities with guidance on how to report certain information about operating segments in annual and interim financial statements. The guidance requires that general purpose financial statements include segment information that is prepared using a method referred to as the management approach. The management approach requires that segment information be reported based on how management internally organizes the segments within a public entity for purposes of allocating resources and assessing performance. That approach allows users to see disaggregated information about the entity through the eyes of management and to assess the performance of the segments in the same way that management reviews them.

BC7. Under the management approach, an entity is first required to identify its operating segments based on the chief operating decision maker’s (CODM) perspective. The guidance then allows, but does not require, that entities aggregate their operating segments if certain criteria are met. The operating segments, including those that have been aggregated, are then evaluated against quantitative thresholds to determine an entity’s reportable segments.

BC8. The guidance requires that a public entity disclose a measure of profit or loss and a measure of total assets for each reportable segment unless the entity explains the reason for not disclosing a measure of total assets. The reported measures should be those that the CODM uses to make decisions about allocating resources to the segment and assessing its performance. Certain other specified segment items and amounts also are required to be disclosed if those items are included in the reported measures of segment profit or loss and total assets or if they otherwise are regularly provided to the CODM. The guidance also requires that a public entity disclose a reconciliation between the total of certain reported segment amounts and the public entity’s corresponding consolidated amounts. Additionally, when the composition of an entity’s reportable segments changes, the corresponding segment information for prior periods is required to be recast and presented on a basis that is comparable with the segment information reported in the current period, unless impracticable.

BC9. Most of the guidance in Topic 280 was codified from Statement 131, which was issued in June 1997 and became effective for fiscal years beginning after December 15, 1997. Before the issuance of Statement 131, segment reporting had been required for public entities in accordance with FASB Statement No. 14, Financial Reporting for Segments of a Business Enterprise. Statement 131 was issued to address users’ concerns that the segment information derived from applying Statement 14, while helpful, was insufficient to meet their needs. The segment reporting guidance has not changed significantly since the issuance of Statement 131.

BC10. To aid in setting its future technical agenda, the Board issued an Invitation to Comment on agenda consultation in 2016 to solicit feedback about the major areas of financial reporting that stakeholders noted should be improved. That Invitation to Comment specifically highlighted four topical areas for stakeholders’ consideration, the financial reporting issues related to each topical area, and some of the possible approaches that the Board could consider in addressing the identified issues. Those topics were identified based on the results of a 2015 Financial Accounting Standards Advisory Council survey that was conducted about the FASB’s agenda priorities, as well as feedback received from the FASB’s other advisory groups and other stakeholders. One of the topical areas focused on the reporting of an entity’s performance, including the presentation and display of revenues, expenses, gains, and losses reported in the income statement, in the statement of other comprehensive income, in segment disclosures required under Topic 280, or in other notes to financial statements.

BC11. Many preparer and practitioner respondents to the 2016 Invitation to Comment stated that a fundamental reconsideration of Topic 280 was not needed. However, many preparers and practitioners suggested that targeted improvements to the segment aggregation criteria should be considered to provide greater clarity on how the Board intended for segments to be aggregated. Investors and other users also suggested that improvements to the segment aggregation criteria should be considered because those respondents would generally prefer less aggregation. Many investors and practitioners who responded to the 2016 Invitation to Comment supported exploring ways to require additional information by segment. In 2017, the Board added a project to its technical agenda and directed the staff to conduct two research studies to evaluate how the segment reporting guidance could be improved in each of those two areas.

BC12. In 2018, the Board undertook the first study with preparers to research the potential effect of either (a) improving the aggregation criteria by relying on a practical limit of 10 reportable segments or (b) re-ordering the process for determining a public entity’s reportable segments whereby any operating segment that exceeds a quantitative threshold would be separately reportable and any remaining operating segments may be combined. Feedback from preparers identified concerns about the operability of both alternatives. While the alternatives would result in public entities disclosing more reportable segments, both would result in a loss of natural groupings of similar operating segments that share similar economics and would limit the ability to put similar operating segments together within a reportable segment. Both alternatives potentially would have resulted in a large all other grouping that would include dissimilar segments. Feedback from the Board’s Investor Advisory Committee (IAC) was mixed, and not all IAC members were dissatisfied with the general number of reportable segments of public entities. Rather, those investors were concerned about the level within an organization at which the operating segments are initially identified, which is a result of applying the management approach. IAC members continued to assert that the management approach is a good basis for segment reporting but that the Board should focus its efforts on improving the current disclosure requirements for each reportable segment. The Board observed that the IAC feedback was largely consistent with the input received from the investor survey respondents in the PIR Report on Statement 131. As a result, the Board decided that the costs of either of the two researched alternatives outweighed the benefits. Furthermore, the Board did not identify any other cost-effective improvements to the existing aggregation requirements. To address other improvements on a more timely basis, the Board concluded that the project’s scope should not include potential amendments that would have affected how an entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments.

BC13. In 2019, the Board undertook a second study with preparers (2019 Disclosure Study) that considered the effect of various potential changes to the segment disclosure requirements, including principles that would require the disclosure of segment expenses, assets, and liabilities and other potential changes to the information disclosed for each reportable segment. While public entities currently are required to report certain information about a reportable segment’s expenses and assets, the 2019 Disclosure Study focused on incremental improvements to add to the existing segment disclosure requirements. Feedback from preparers indicated that changes to the disclosures about a segment’s assets and liabilities may not be relevant to a wide cross section of entities. Public entities that engage in insurance, technology, or other service-based industries often may not allocate specific assets at a segment level. Similarly, preparers indicated that many of their liabilities, such as long-term debt, arise at the corporate level or are centrally managed and the liabilities are not allocated to specific segments for internal reporting purposes. Subsequent outreach with investors indicated general support for amending segment disclosures and, in particular, improving the disclosure of segment expenses. The Board further deliberated those issues, which resulted in the amendments in this Update about significant segment expenses.

BC14. The objective of financial reporting is to provide information that is useful for present and potential investors, creditors, and other capital market participants in making investment, credit, and similar resource allocation decisions. However, the benefits of providing information for that purpose should justify the related costs. Present and potential investors, creditors, and other allocators of capital benefit from improvements in financial reporting, while the costs are borne primarily by present investors. The Board’s assessment of the costs and benefits of issuing new guidance is unavoidably more qualitative than quantitative because there is no method to objectively measure the costs to implement new guidance or to quantify the value of improved information in financial statements.

BC15. The Board considers the amendments in this Update to be responsive to the concerns raised by investors about the need for more disaggregated information at the segment level and incremental to the existing segment disclosure requirements. Feedback from preparers indicates that most public entities will report additional segment information under the amendments in this Update from what is reported under the existing segment disclosure requirements. The Board also considers that this is one of several projects on the Board’s technical agenda that will result in greater disaggregation of financial information for investors. The improved segment disclosures that will result from the amendments are complementary to the efforts in those projects (including improvements to income tax disclosures and disaggregation of income statement expenses) to provide enhanced granularity of financial information.

BC16. In addition to the benefits of retaining the management approach to segment reporting, the Board expects that the amendments in this Update will enhance the segment information that investors receive by expanding the segment disclosures, as follows:

BC17. The extent of incremental information that will be newly reported under the significant expense principle and the other amendments in this Update may vary across public entities. However, the Board expects that nearly all public entities will disclose new segment information under the amendments. Those benefits should allow financial statement users to better understand the components of a segment’s profit or loss to assess the prospects for future cash flows of each reportable segment and the consolidated entity as a whole.

BC18. Based on preparers’ and practitioners’ feedback, the most cited costs include (a) one-time costs for additional personnel time to understand the requirements, prepare the new disclosures, and reevaluate internal controls over the segment information and (b) recurring incremental audit costs. Some preparers also raised concerns about potential competitive harm, such as competitors having better insights into an entity’s cost structure or more detail about profit margins. The Board acknowledges that the expected costs of implementing the amendments in this Update will vary among public entities, in particular because of the variability in the level of segment expense detail provided to a public entity’s CODM. The Board observed that many of those costs are similar to costs incurred for any new disclosure requirement.

BC19. The Board decided to align the amendments in this Update with the management approach to segment reporting to mitigate application costs. The Board expects that the information disclosed under the amendments should be mostly consistent with the information that a public entity already prepares internally and communicates to management. Therefore, the Board anticipates that most public entities will not incur undue costs in complying with the amendments.

BC20. Overall, as further explained in additional detail below, the Board concluded that the expected benefits of the amendments in this Update justify the expected costs.

BC21. The amendments in this Update introduce a disclosure principle in Topic 280 that requires that public entities report, on an annual and interim basis, incremental information about significant segment expenses included in a segment’s profit or loss measure. The Board decided to focus on expense information in this segments project after considering feedback from stakeholders, which indicated that investors frequently request more detailed expense information. Additional expense information helps investors better assess financial trends, perform more precise financial modeling when forecasting the components of an individual segment’s profit or loss, and better evaluate an entity’s business activities. Additionally, some investors indicated that understanding the composition of an entity’s expenses at the segment level and how the related amounts vary over time is helpful in signaling when major changes occur within the business. Investors also stated that additional expense information by reportable segment would complement the data received from other sources (for example, information outside the financial statements within other public filings, earnings releases, and management’s discussion and analysis) and could be used by investors to challenge and confirm explanations provided by management about an entity’s current and expected future performance.

BC22. Investors encouraged the Board to improve the segment disclosure requirements. Although some investors provided feedback on other potential areas of enhancement of segment disclosures, the Board decided to focus the amendments in this Update on investors’ highest priority disclosure, which was segment expenses, because this approach strikes a balance between making improvements that would best respond to investors’ feedback and the length of time before those changes are reflected within the segment disclosures of public entities. Moreover, feedback on the 2012 PIR Report and investor outreach throughout deliberations indicated overall investor support for the management approach to segment reporting. The Board observed that any project seeking to undertake more fundamental changes to the segment reporting guidance, such as the identification of operating segments, could depart from the management approach and may have taken many more years to finalize, thereby delaying the improved disclosures provided by the amendments. It also could have affected the application of other Codification Topics that rely on the definition of an operating segment.

BC23. The amendments in this Update apply to all public entities. A few comment letter respondents asked for an exception to the requirements in Topic 280 for certain types of public entities, including (a) wholly owned subsidiaries that file financial statements with the Securities and Exchange Commission and (b) nonissuer broker-dealers. The Board considered that feedback and decided not to change the scope of entities within Topic 280.

BC24. Topic 280 requires that single reportable segment entities apply the entity-wide disclosures in paragraph 280-10-50-38; however, it was previously silent about whether those entities were required to apply the other existing segment disclosures and reconciliation requirements on an annual or interim basis. Academic research indicates that approximately one-third of public entities report their results as a single reportable segment entity. The Board decided that the amendments in this Update should apply to all public entities and, therefore, single reportable segment entities should apply both the significant expense principle and the existing segment disclosures. During deliberations, the Board acknowledged that because of the inconsistency in how single and multiple reportable segment entities apply the existing segment disclosure requirements, this decision would be a significant change in practice that will provide investors with additional and enhanced transparency. The Board observes that this requirement applies to all entities, including an entity that has identified a single operating segment.

BC25. This requirement results in investors being provided with additional information for entities within the scope of Topic 280 in a manner consistent with the management approach and reduces potential incentives for public entities to aggregate operating segments into a single reportable segment to avoid disclosing information required by the amendments in this Update.

BC26. Stakeholders generally supported requiring that all public entities, including single reportable segment entities, apply both the significant expense principle and the existing segment disclosures. Because it may not be apparent how the financial information of an entity with a single reportable segment may be different from the entity’s consolidated financial information, some respondents requested additional guidance on how the requirements apply to entities with a single operating segment.

BC27. Paragraph 280-10-50-5 states that the function of the CODM is to allocate resources to, and assess performance of, a segment. That function is the same regardless of whether a public entity has identified one or more operating segments. The Board observed that the concept of allocating resources is a consideration of how a CODM directs the public entity’s resources to the business activities, not just how resources are directed among or across the segments. While a CODM of a single reportable segment entity with a single operating segment does not allocate resources among segments, the CODM is responsible for allocating the entity’s resources. Depending on facts and circumstances, the measure of segment profit or loss that is used by the CODM of an entity with a single operating segment may, while addressing both, focus more on assessing performance than allocating resources.

BC28. In response to stakeholders’ feedback, the Board decided to include additional implementation guidance to clarify its intent that all public entities, including those with a single operating segment, are required to apply all of the guidance within Topic 280. That implementation guidance emphasizes that an entity may distinguish the business activities of the single operating segment from the consolidated entity based on the definition of an operating segment. In particular, paragraph 280-10-50-4 states that not all parts of a public entity are an operating segment or part of an operating segment, for example, corporate headquarters or certain functional departments.

BC29. Consistent with the requirements of multi-segment entities, a public entity with a single operating segment should identify the measure or measures of the segment’s profit or loss that the CODM uses in assessing segment performance and deciding how to allocate resources. The Board expects that those measures generally will be apparent from the internal management reports that are regularly provided to the CODM.

BC30. The Board acknowledges that the measure or measures of segment profit or loss that are used by the CODM in assessing performance and deciding how to allocate resources may distinguish the results of a single operating segment from the consolidated entity, such as operating income that excludes corporate costs (similar to a multi-segment entity with a measure of segment profitability that excludes certain corporate costs). Some comment letter respondents also indicated that a CODM may use a consolidated profit or loss measure that is presented on a public entity’s income statement, such as consolidated operating income, as well as a consolidated profit or loss measure that is not presented on the consolidated income statement, such as earnings before interest, taxes, depreciation, and amortization expense (EBITDA).

BC31. If the CODM of a single reportable segment entity uses more than one measure of 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 the public entity’s consolidated financial statements. A single reportable segment entity may report additional measures of segment profit or loss that are used by the CODM in assessing segment performance and deciding how to allocate resources.

BC32. Some comment letter respondents indicated that when a CODM of a single operating segment entity uses a consolidated profit or loss measure that is presented on a public entity’s income statement, the disclosures required by the significant expense principle and the existing segment requirements from paragraphs 280-10-50-22 and 280-10-50-25 could result in duplicating all or certain parts of the information from the primary financial statements in the segment footnote. While duplication is not prohibited, the Board believes that duplication of the entire consolidated income statement in the segment footnote is unnecessary; rather, a public entity may choose to reference the primary financial statements in the segment footnote. The Board understands that public entities apply judgment when deciding whether to repeat certain information within a set of financial statements and expects that entities will apply similar judgment when applying the amendments in this Update.

BC33. The Board decided to require that a public entity disclose the significant segment expense categories and amounts that are regularly provided to the CODM on a segment basis and included within each reported measure of a segment’s profit or loss (“the significant expense principle”). To apply the significant expense principle, an entity should first identify the segment level expense information that is regularly provided to the CODM. The entity should evaluate that information to identify those segment expenses that are included in each reported measure of a segment’s profit or loss. The entity should then disclose those identified segment expense categories and amounts that are significant.

BC34. The Board observed that applying the significant expense principle would be consistent with the CODM’s perspective because the conditions on which the significant expense principle is based align with the information the CODM receives. Furthermore, feedback from IAC members indicated that understanding when a CODM does not use segment expense information to assess performance also would be informative. Additionally, the Board concluded that applying the significant expense principle would produce additional segment expense disclosures without entities incurring a significant amount of additional cost.

BC35. Many investors indicated that disclosures about an entity’s significant segment expenses under the management approach would result in decision-useful information. Because the significant expense principle leverages information provided to the CODM, the extent of additional information disclosed by a public entity will vary depending on the level of expense information provided to a public entity’s CODM. That is, the significant expenses may vary between reportable segments within an entity, between entities in the same industry, or across different industries. The variation in information disclosed is expected to be informative for investors because it should provide insight into how an entity manages its segments and how one entity’s approach might differ from the approach of another entity operating in the same or similar industries. Some investors further stated that while entities within the same industry may develop reporting conventions over time that could result in similar expense categories being reported, that outcome would still produce decision-useful information. While the significant expenses may vary between reportable segments, investors indicated that it would be important to obtain information about the same expense categories within a reportable segment over time, so that baseline expectations can be established and trends can be analyzed on an ongoing basis.

BC36. During the initial outreach discussions before the proposed Update was issued, financial statement preparers indicated that they generally would be able to identify their segment’s expenses for disclosure purposes if required to do so. Additionally, although some indicated that they do not report detailed expense information to their CODMs, more than half of the preparers included in the outreach discussions highlighted that they currently report segment expense information to their CODMs for internal reporting purposes. Similarly, half of comment letter respondents that are preparers indicated that they will likely disclose additional segment expense information under the significant expense principle. Preparers also generally preferred a principles-based disclosure requirement instead of a more prescriptive requirement to disclose specific segment expenses because the incremental disclosures will reflect information from the CODM’s perspective.

BC37. Because segment reporting is based on the management approach, the Board concluded that it will be helpful for investors to understand who or what group within an entity is identified as the CODM. Therefore, the Board decided to require that an entity disclose the title and position of the individual or the group that is the CODM. The Board reasoned that knowledge of the title and position of the CODM within an organization will be useful in providing context for the disclosed segment information. In addition, the Board determined that this information is readily available to be disclosed without additional cost. Most comment letter respondents did not object to the requirement to disclose the title and position of the CODM. In addition, many investors stated that disclosing the CODM’s title and position would provide helpful context to the segment information as a whole and may facilitate their ability to ask better questions of management.

BC38. Topic 280 uses the term regularly reviewed information within the definition of operating segment when referring to the information that a CODM uses to allocate resources and assess performance. Topic 280 also uses the term regularly provided information when referring to the frequency with which the CODM receives segment information when determining whether certain segment items and amounts must be reported under existing disclosure requirements. The Board decided to base the significant expense principle on the information that is regularly provided to the CODM to align with the same term in the existing segment disclosure requirements. Because the term regularly provided information is undefined, the Board understands that entities apply judgment when determining whether certain segment items and amounts provided to the CODM must be disclosed under existing disclosure requirements.

BC39. Most comment letter respondents did not object to or disagree with using the term regularly provided. However, a few comment letter respondents suggested that the Board revise the significant expense principle to require disclosure of information that is regularly reviewed by the CODM, rather than information that is regularly provided. Those respondents noted that a CODM may receive large amounts of information by segment that is not reviewed or used by the CODM. Those respondents suggested that basing the significant expense principle on regularly reviewed information will result in the disclosure of segment expense categories and amounts that are more relevant to investors because it will reflect the information that management reviews and uses. The Board considered that suggestion but concluded that limiting the significant expense principle to information that is regularly reviewed by the CODM may result in less information being disclosed, as compared with regularly provided information. Furthermore, the Board concluded that basing the significant expense principle on regularly provided information better aligns with the segment expense information that is already being prepared and communicated within internal management reports.

BC40. Some comment letter respondents also suggested including additional guidance to clarify the meaning of regularly provided information. As part of the 2019 Disclosure Study, the Board considered whether additional standard setting was necessary to clarify the term regularly provided information, specifically, whether clarifying the frequency of both (a) the internal management reports that are provided to the CODM and (b) the information communicated within the internal management reports would be an improvement. Feedback from the 2019 Disclosure Study indicated that clarifying the frequency of when segment information is considered “regular” would affect the practice and interpretation of both regularly provided information and regularly reviewed information. That outcome could have affected segment identification.

BC41. As a result of the 2019 Disclosure Study feedback, the Board decided not to clarify the term regularly provided information in the amendments in this Update. Furthermore, most comment letter respondents indicated that entities are generally able to comply with existing segment disclosure requirements and apply judgment when identifying the segment information that is regularly provided to the CODM. Thus, the Board concluded that an entity will be able to use judgment when applying the term within the context of the significant expense principle, which generally aligns with the way in which management’s reports are prepared.

BC42. In developing the significant expense principle, the Board considered feedback received from preparers that the segment expense information regularly provided to the CODM may include information distributed electronically, in dashboards, or in paper format and may be in a form other than a caption and actual amount (for example, advertising expense expressed as a percentage of revenue) or the information can be computed on the basis of other segment amounts or ratios that are regularly provided to the CODM. For example, cost of sales can be computed when segment revenue and segment gross margin or gross margin percentage are provided. Accordingly, the Board decided to include an easily computable concept in its amendments to the disclosure requirements in paragraph 280-10-50-26A to capture that information.

BC43. The Board concluded that the significant expense principle should be based on the substance of the segment information that is regularly provided to the CODM rather than on its form. Additionally, the Board observed that it is useful to include an easily computable concept as part of the amendments in this Update to ensure that the objective of the disclosure is met and that investors receive relevant information about significant segment expenses.

BC44. In making its decision, the Board acknowledged that when an entity is determining whether certain expenses are being regularly provided to the CODM for a segment, using the phrase easily computed introduces some subjectivity about a calculation’s perceived level of difficulty. The examples included in the amendments in this Update illustrate some ways in which entities may apply the concept. However, those examples are not intended to contemplate all possible forms in which segment information may be reported to the CODM, which can vary across entities and industries. The examples are not intended to limit the types of segment expenses that may be subject to the significant expense principle or limit the easily computable concept to specific forms of segment information. The Board expects that public entities will be able to apply the easily computable concept consistently without creating additional cost or complexity. No comment letter respondents raised concerns about the operability of this requirement.

BC45. A few comment letter respondents requested that the Board clarify how the significant expense principle applies when the segment expense information that is regularly provided to the CODM and included within the measure of segment profit or loss contains an expense category and amount for corporate overhead expense that is allocated to the segments. That is, allocated overhead may be included within the measure of segment profit or loss and presented as a standalone segment expense category and amount in the management reports that are regularly provided to the CODM. Those respondents indicated that the standalone amount for allocated overhead by segment may be quantitatively large but is not considered important to how the CODM allocates resources and assesses segment performance. Those respondents preferred that the category and amount for allocated overhead by segment should be exempt from the significant expense principle and included within other segment items (see paragraph BC72). Conversely, feedback received through investor outreach indicated that investors would prefer greater transparency of the corporate overhead expenses that are allocated to the reportable segments and included within the measure of segment profit or loss.

BC46. As part of its redeliberations, the Board observed that the significant expense principle was developed to align with the information that is regularly provided to the CODM and included in the measure of segment profit or loss. The Board concluded that it would be contradictory to the significant expense principle for allocated overhead by segment to be treated differently than all other segment expenses that are regularly provided to the CODM and included the measure of segment profit or loss. The Board decided to include additional implementation guidance in the amendments in this Update to illustrate how the significant expense principle applies in those cases.

BC47. Topic 280 requires that a public entity disclose a measure of segment profit or loss that the CODM uses for purposes of assessing segment performance and deciding how to allocate resources. That is, the guidance does not prescribe the specific measure of profit or loss that an entity is required to report. This means that a public entity reports information about the performance of the segments in the same way that management receives it.

BC48. During deliberations, the Board received requests from stakeholders to clarify whether the significant expense principle should be applied to each reported measure of a segment’s profit or loss. At present, the guidance in Topic 280 acknowledges that a CODM may use more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The Board concluded that the significant expense principle should be applied to each reported measure of a segment’s profit or loss because that would result in investors receiving more information about a segment’s expenses, which is consistent with the level of information regularly provided to the CODM.

BC49. The Board also decided to clarify that a public entity may report more than one measure of a segment’s profit or loss as long as all reported measures are used by the CODM in assessing segment performance and deciding how to allocate resources. However, the reported measures must include the segment profit or loss measure that is most consistent with GAAP measurement principles. In other words, in addition to the measure that is most consistent with GAAP measurement principles, a public entity is not precluded from reporting additional measures of a segment’s profit or loss that are used by the CODM in assessing segment performance and deciding how to allocate resources. The Board acknowledged that this decision may include segment profitability measures that are not determined in accordance with the measurement principles used in measuring the corresponding amounts in the public entity’s consolidated financial statements.

BC50. In reaching that conclusion, the Board observed that when a CODM uses only one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, the existing guidance requires disclosure of that measure even when the measure is not prepared in accordance with the measurement principles most consistent with GAAP. The Board also concluded that this decision responds to investors’ feedback from both the IAC and the PIR Report on Statement 131 that indicated support for the management approach to segment reporting but that also requested that public entities disclose more information for each reportable segment.

BC51. The Board clarified that the existing segment disclosures in paragraphs 280-10-50-22 through 50-24 and 280-10-50-29, the significant expense principle and other segment items in paragraphs 280-10-50-26A through 50-26C, and the reconciliation requirements in paragraph 280-10-50-30(a) and (b) should apply to segment revenue and each reported measure of a segment’s profit or loss. The Board decided that this outcome aligns with the management approach because if a CODM internally receives and uses multiple measures of segment profitability in assessing segment performance and deciding how to allocate resources, then that information would be of interest to investors. The Board also observed that the outcome of this amendment may be that certain measures of a segment’s profit or loss currently reported outside the financial statements, such as in earnings releases, may be incorporated into the audited financial statements.

BC52. Most investors and other stakeholders supported the amendments in the proposed Update related to disclosure of multiple measures of a segment’s profit or loss and supported the Board’s decisions to require (a) that the existing segment disclosures, the significant expense principle, and other segment items apply to each reported measure and (b) a reconciliation of the total of the reportable segments’ amount for each measure of profit or loss to the public entity’s consolidated income before income taxes in accordance with paragraph 280-10-50-30(b). Stakeholders noted that the disclosure of additional measures could provide incremental information and insight into how the CODM views and measures segment performance. Additionally, by including the information in the segment footnote, it subjects the information to auditing and internal controls over financial reporting.

BC53. Several comment letter respondents suggested ways to limit public entities from selectively reporting an additional measure of a segment’s profit or loss in one period but not in another. In response to those recommendations, the Board decided to require that any additional measure of a segment’s profit or loss reported in the current period also be reported in the comparative periods when that measure was provided to the CODM in those periods. For example, if an entity voluntarily presents EBITDA for a reportable segment in the current period, it also should disclose EBITDA for the reportable segment in the prior comparative periods if EBITDA was provided to the CODM in those periods. The disclosure requirements in paragraphs 280-10-50-22 through 50-24 and the significant expense principle apply to each reported measure of segment profit or loss in each period presented, and the reconciliation requirements in paragraph 280-10-50-30(b) apply to the total of the reportable segments’ amount for each profitability measure.

BC54. While most comment letter respondents supported the Board’s decision, several respondents cautioned that it could lead to the proliferation of “non-GAAP” information within the financial statements. Some stakeholders also expressed concern that a public entity potentially could report an additional measure that is only occasionally reported to the CODM or is misleading in nature. The Board observed that the amendments in this Update only allow the disclosure of a segment’s profit or loss measure that is used by the CODM in assessing segment performance and deciding how to allocate resources. That is, a public entity is not permitted to disclose a measure of a segment’s profit or loss that is not used by the CODM for that purpose. In response to stakeholders’ concerns and to provide investors with additional transparency, the Board also decided to require that a public entity include a narrative explanation of how its CODM uses the reported measure(s) of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The Board decided to require that disclosure for all public entities, including those that disclose only one measure of segment profit or loss.

BC55. The Board concluded that the collective set of requirements to (a) disclose the title and position of the CODM, (b) allow disclosure of multiple measures of a segment’s profit or loss that a CODM uses to allocate resources and assess performance, and (c) provide a narrative explanation of how the CODM uses the reported measure(s) of a segment’s profit or loss provides investors with useful information and contextualizes the segment information.

BC56. The Board’s decisions on the significant expense principle do not affect the reported measure of a segment’s assets, and stakeholders’ feedback did not indicate a need for the Board to clarify whether a public entity is allowed to report multiple measures of a segment’s assets. Comment letter respondents similarly stated that a CODM generally receives only one measure of a segment’s assets. Therefore, the Board decided not to extend the decision that a public entity may report more than one measure of a segment’s profit or loss to other types of measures that are used by a CODM.

BC57. The guidance in Topic 280 uses the term significant in various aspects. For example, the guidance requires that public entities disclose significant noncash items (other than depreciation, depletion, and amortization expense). The guidance does not define the term significant or specify how an entity may interpret its meaning. The Board is unaware of practice issues with the current use of this term, and stakeholders indicated that when determining whether information is significant under existing segment disclosure requirements, entities consider characteristics that are quantitative, qualitative, or a combination of both, depending on an entity’s facts and circumstances. As a result, the Board did not propose additional guidance about how to apply the significance threshold in the proposed Update.

BC58. Most comment letter respondents to the proposed Update indicated that the significance threshold is operable. Stakeholders noted that the significance threshold is important for operability because a CODM may be regularly provided with voluminous amounts of information by segment. Without a significance threshold, incremental guidance may have been needed to address those cases. However, many observed that applying the significance threshold may require judgment and recommended that the Board clarify certain aspects to reduce potential diversity from developing. Some stakeholders acknowledged that the basis for conclusions in the proposed Update indicated that entities are likely to consider quantitative and qualitative factors when evaluating significance but recommended that the Board explicitly state in the Codification that an evaluation of quantitative and qualitative factors is required. The Board agreed that including that language in the Codification would clarify the Board’s intent and aid practice in applying the significance threshold.

BC59. Several stakeholders recommended clarifying whether the significance threshold is applied at the segment level or the consolidated level. Other stakeholders suggested clarifying whether significance is based on (a) what management considers to be significant when deciding to allocate resources to the segment and assess its performance or (b) whether it is probable that the judgment of a reasonable person relying upon the financial report would have changed or been influenced by including the information that was omitted. During redeliberations, the Board discussed those two aspects. The Board observed that segment information that if omitted would change a user’s understanding about a segment to such a degree that it would change the user’s capital allocation decisions about an entity as a whole is significant even though an item of a similar magnitude might not be considered significant if it were omitted from the consolidated financial statements. The Board further observed that this application of the significance threshold is largely consistent with the views in paragraph 78 of the basis for conclusions of Statement 131.

BC60. The Board considered whether to permit public entities to combine or group expenses that have been identified from the information that is regularly provided to the CODM before applying the significance threshold and also whether to allow aggregation of expenses at the same level as the corresponding caption on the consolidated income statement. Some preparers indicated that combining expenses into groups (for example, based on similar nature or function) would align the disclosure of segment expenses in the notes to financial statements with how an entity discusses its operating results in the management’s discussion and analysis section of its public filing. Some preparers also expressed a concern that, in some instances, disclosing segment expenses on a more disaggregated basis may be competitively harmful. Allowing entities to combine segment expenses would address aspects of those concerns.

BC61. The Board decided not to provide additional guidance in this area. In making its decision, the Board highlighted that the narrative included in the management’s discussion and analysis section of an entity’s public filing is intended to discuss the results of a public entity’s operations, including segment information. That purpose is different from requiring disclosure of information under the significant expense principle. The Board observed that if segment expense categories are regularly provided to the CODM on a disaggregated basis and included in the measure of segment profit or loss, investors also would likely find that information useful. In addition, the Board was concerned that introducing a step within the significant expense principle to combine expenses into groupings or allow the aggregation of expenses at the same level as the corresponding caption on the consolidated income statement would depart from the management approach, require additional judgments by management, and increase costs for preparers.

BC62. The Board considered three alternative approaches when developing the significant expense principle. The Board acknowledged that each alternative approach may have resulted in incremental segment expense information compared with the approach included in the amendments in this Update. However, in evaluating both the benefits for investors and other financial statement users under each alternative and the costs for public entities, the Board concluded that an appropriate balance would be achieved by the significant expense principle in the amendments in this Update. One alternative approach would have required that a public entity disclose the significant segment expenses that are either included in the reported measure of segment profit or loss or otherwise regularly provided to the CODM on a segment basis (even if those expenses are not included in the segment profit or loss measure). Under this approach, an entity would disclose the segment expenses that meet either of those two conditions, which is similar to the existing segment disclosures in paragraph 280-10-50-22.

BC63. The second alternative approach considered would have required that a public entity disclose the significant segment expenses that are included within the measure of segment profit or loss, regardless of whether the CODM is regularly provided with segment-level expense information.

BC64. The Board rejected both of those approaches because it decided that the expected benefits would not justify the expected costs. Under those approaches, a public entity would have been required to report segment expenses that are not regularly provided to the CODM, which departs from the management approach and could have resulted in a public entity preparing and reporting segment information that is not used by the CODM to allocate resources and assess performance. While preparer outreach indicated that in nearly all instances entities would be required to disclose additional information about segment expenses under those approaches, the Board agreed with stakeholders’ concerns that those approaches potentially would create significant operability concerns and undue cost and complexity within the financial reporting system. This is because segment information is typically based on the amounts regularly provided to the CODM, which may not always be prepared in accordance with GAAP recognition and measurement methods. To require disclosure of specific expense categories and amounts under those approaches would have necessitated that the Board define those expense categories and amounts, which would have been challenging. The Board’s view is that the significant expense principle in the amendments in this Update can be implemented without substantial effort and will result in a public entity reporting additional segment information in its financial statements on an expedited basis.

BC65. The third alternative approach would have required that a public entity disclose the significant segment expenses that are regularly provided to the CODM for a segment, regardless of whether the expenses are included in the reported measure of segment profit or loss. The Board acknowledged that not all public entities provide the CODM with segment expense information. However, investors indicated that the management approach provides useful segment information. The Board concluded that this approach is incremental to what is currently required by Topic 280. The Board considered preparers’ feedback that a CODM may be regularly provided with segment expenses that are both inside and outside the reported measure of segment profit or loss. The Board decided that the significant expense principle should include the segment expenses that are inside the reported profit or loss measure based on operability considerations. Therefore, the Board decided to narrow the significant expense principle in the amendments in this Update to require disclosure of the significant expense categories that are both regularly provided to the CODM and included within reported segment profit or loss.

BC66. Most respondents and outreach participants supported the approach in the proposed Update that a public entity should disclose the significant segment expense categories and amounts that are (a) regularly provided to the CODM on a segment basis and (b) included within reported segment profit or loss. Notwithstanding, some comment letter respondents supported one or more of the alternative approaches or a rules-based approach (such as specified quantitative thresholds) to requiring disclosure of a public entity’s segment expenses. Outreach indicated that some investors supported the alternative approaches. Nevertheless, most investors noted that the significant expense principle in the amendments in this Update permits better modeling and analysis of a public entity’s reportable segments than the information that is reported under the existing requirements and provides insight by using the management approach. Given the broad support from stakeholders and investors’ feedback that the significant expense principle would provide decision-useful information, the Board decided to affirm the significant expense principle during redeliberations.

BC67. As part of its deliberations, the Board considered what the outcome of applying the significant expense principle would be, how that outcome would interact with current segment disclosure requirements in interim and annual financial statements, and the overall decision usefulness of the segment expense information that would be disclosed.

BC68. One possible outcome of applying the amendments in this Update may be that certain segment expenses that are required to be disclosed under the existing segment disclosures may also meet the criteria for disclosure under the significant expense principle. That is because Topic 280 requires that certain specified segment expense information, such as depreciation and amortization expense, be disclosed when the items are regularly provided to the CODM, regardless of whether the items are included in reported segment profit or loss. On the basis of those existing disclosure requirements, the Board considered whether retaining the existing segment expense disclosure requirements would be necessary.

BC69. The Board decided to retain the existing segment expense disclosure requirements. The Board acknowledged that those requirements were specifically included in Statement 131 to address stakeholders’ feedback that certain segment expense items should be disclosed, which may provide an indication of the cash-generating ability or cash requirements of an entity’s operating segments. Therefore, the purpose of the existing segment expense disclosures is different from the Board’s reasoning for requiring disclosure of the significant segment expenses. The significant expense principle is intended to result in the disclosure of segment expense categories and amounts that provide users with insight into how segment expense information is viewed by the CODM. Additionally, the Board concluded that if the existing segment expense disclosure requirements were removed, public entities may report less information in their segment disclosures, which would contradict the Board’s objective for undertaking this project.

BC70. In some cases, other Topics within the Codification require that certain information be disclosed for each reportable segment. For example, Topic 420, Exit or Disposal Cost Obligations, and Topic 350, Intangibles—Goodwill and Other, require disclosure of certain exit or disposal activity expenses and goodwill impairment by reportable segment. The amendments in this Update do not affect the existing requirements of other Topics to disclose certain information by segment or how those Topics are applied. A public entity should disclose segment expenses under the significant expense principle based on the guidance in Topic 280 and disclose certain information by segment required by other Codification Topics.

BC71. Another possible outcome that the Board considered was that some segment expenses included in reported segment profit or loss may not be separately disclosed under either the guidance in paragraph 280-10-50-22 or the significant expense principle, for example, when a public entity does not regularly provide segment expense categories and amounts to the CODM. Investors’ feedback indicated that segment expense information has limited usefulness unless the information is considered in a holistic context, for example, when the segment expense categories and amounts can be understood in relation to other items that affect segment profitability.

BC72. Consequently, the Board decided that for each reportable segment, an entity is required to disclose an amount for other segment items. Other segment items represent the difference between (a) reported segment revenues less the segment expenses disclosed under the significant expense principle and (b) reported segment profit or loss. That amount may include (i) the total amount of a segment’s expenses that are included in the reported measure(s) of segment profit or loss but are not regularly provided to the CODM, (ii) the total amount of a segment’s expenses that are not significant, or (iii) the total of gains, losses, and other amounts that are included in each reported measure of a segment’s profit or loss. A description of the composition of other segment items also should be disclosed. Other segment items may include amounts for the existing segment expense disclosures under paragraph 280-10-50-22, such as depreciation expense, unless those disclosures also are reported under the significant expense principle. That is, the requirements to disclose segment expenses under the significant expense principle and an amount for other segment items may be incremental to the segment information reported in accordance with paragraph 280-10-50-22.

BC73. Disclosing an amount for other segment items is required even when a public entity does not separately report expenses under the significant expense principle. The Board concluded that a public entity should disclose the nature of the expense information that the CODM uses to manage operations if the entity does not disclose expenses under the significant expense principle for one or more of its reportable segments. For example, a public entity should explain that the CODM is provided with budgeted or forecast expense information for those reportable segments or may use consolidated expense information. The Board concluded that such an explanation will allow an investor to understand why the entity has not separately disclosed information under the significant expense principle.

BC74. Some comment letter respondents expressed concern about the cost of providing the other segment items disclosures. Furthermore, a few respondents requested additional guidance on the level of granularity required when describing the composition of other segment items. The Board acknowledged that there may be additional preparation costs associated with those disclosures; however, most investors supported disclosing an amount and description for other segment items and noted that the information would be decision useful. The Board observed that a public entity should use judgment when describing the composition of other segment items and that the amendments in this Update include an example illustrating how a public entity may address that requirement. Similarly, the Board also acknowledged that there is broad investor support for disclosing the nature of the expense information that the CODM uses to manage operations if the entity does not disclose significant expenses for one or more of its segments.

BC75. Paragraph 280-10-50-26B states that an expense may be significant for one segment but not significant for another of a public entity’s segments. In those cases, for the reportable segment(s) for which the segment expense is not significant, a public entity may separately report the segment expense that is not significant or, alternatively, a public entity may include it as part of the amount for other segment items. No comment letter respondents disagreed with this guidance; however, a few respondents suggested that the Board further clarify that guidance. The Board decided to amend the implementation example in paragraph 280-10-55-48 to illustrate how professional services expense may be significant for some reportable segments and included as a component of other segment items for other reportable segments.

BC76. The Board observed that under the current guidance in paragraph 280-10-50-22 a public entity may disclose a net interest revenue amount for a segment, rather than separate amounts for gross interest revenue and gross interest expense, when (a) a majority of the segment’s revenues are from interest and (b) the CODM primarily relies on the net interest revenue amount to assess segment performance and allocate resources. The Board considered the interaction of that guidance with the significant expense principle and decided that the amendments in this Update should require that a public entity disclose gross interest expense when that amount meets the criteria in paragraph 280-10-50-26A, even if the public entity meets the conditions in paragraph 280-10-50-22 for disclosing net interest revenue for a financial operations segment. 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.

BC77. During its deliberations, the Board observed that some, but not all, segment items specified in paragraphs 280-10-50-22 and 280-10-50-25 are required to be disclosed in interim periods as well as in annual periods. For example, when financial statements are prepared on a quarterly basis, Topic 280 requires disclosure of segment revenues and segment profit or loss for the current quarter and year to date. However, that Topic does not require depreciation, depletion, and amortization expense to be disclosed in the interim financial statements. The Board decided that the significant expense principle and all existing segment items about a reportable segment’s profit or loss and assets should be disclosed on an interim and annual basis. A public entity is required to disclose a reconciliation of segment profit or loss on an interim basis, while additional interim reconciliations for other segment amounts are permitted but not required by the amendments in this Update. Comment letter respondents and outreach participants supported this decision. Both preparers’ feedback and investors’ feedback indicated that many public entities will report some incremental information on an interim basis as a result of this decision. The Board concluded that this decision will 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.

BC78. While the segment expense categories and amounts reported under the significant expense principle are based on the information that a public entity regularly provides to its CODM, preparers’ feedback indicated that the amounts provided to the CODM often do not reconcile total segment expenses to the consolidated expense totals. The Board acknowledged that several operability complexities could arise if a reconciliation were required. Those include when segment expenses that are regularly provided to the CODM are not aligned with the accounting methods used to recognize and measure the consolidated expense amounts and the same types of expense items are included in more than one segment expense category.

BC79. Comment letter respondents generally agreed that operability complexities could arise if a reconciliation were required. Specifically, the segment expense categories are based on the information that is regularly provided to the CODM under the management approach, whereas the consolidated income statement line items are based on GAAP requirements. Feedback from investors indicated that the existing reconciliation requirements for the total of the reportable segments’ revenues and profit or loss provide sufficient information about the segment information as a whole. Investors also indicated that the absence of a reconciliation of significant expense information would not significantly diminish the decision usefulness of the segment information provided and that investors would be able to compare segment information with the consolidated results and ask management questions about the differences.

BC80. Accordingly, the Board decided not to require that a public entity reconcile the total of the reportable segments’ amount for each significant expense category to its corresponding consolidated expense amount and not to require that the public entity disclose how the significant expense categories and amounts reconcile to relevant consolidated income statement line items. The Board concluded that applying the significant expense principle will still result in public entities disclosing incremental segment information that is useful for investors, even without the total of the reportable segments’ amount for each expense being reconciled to its corresponding consolidated expense amount. This is because the segment expenses that would be disclosed under the principle provide an enhanced understanding of the components of a segment’s profitability.

BC81. Topic 280 requires that an entity recast (previously referred to as restatement; see below) prior-period segment information that is presented in the current-period financial statements on an annual and interim basis when there is a change in the composition of an entity’s reportable segments, unless doing so is impracticable. The Board decided that those recasting requirements also should apply to segment expense categories disclosed under the significant expense principle. That is, previously reported segment expense categories and amounts should be recast in the current period when there is a change in the composition of reportable segments, unless impracticable. In addition, the Board decided that an entity should recast the significant segment expense categories and amounts reported in prior periods to conform with the segment expense categories in the current period when the entity changes its internal reports and the segment expense information that is regularly provided to the CODM changes in the current period, unless it is impracticable. If the prior period segment information is not recast, a public entity should disclose segment information for the current period under both the old and the new significant expense categories. The Board concluded that this will allow investors to evaluate and model the current-period information with comparable information of prior periods. The Board also decided that a public entity is not required to recast prior-period segment expense categories and amounts in the current period as a result of changes in measurement methods, although it is preferable to do so, to remain consistent with the existing recasting requirements when there is a change in measurement methods.

BC82. Some stakeholders requested clarity on the recasting of prior-period segment information when a segment expense that is regularly provided to the CODM is significant in the current period but was not significant in a prior period and, conversely, when a segment expense is not significant in the current period but was significant in a prior period. The Board observed that the significance threshold is used in several disclosure requirements of Topic 280 and that public entities have developed practices for recasting prior-period information when segment information meets or no longer meets significance in the current period. The Board also observed that the guidance in paragraphs 280-10-50-16 through 50-17 is relevant in considering when to recast prior-period segment expense information under the significant expense principle. That is, if management determines that a segment expense that was significant in the prior period(s) and is not significant in the current period is expected to be of continuing significance, information about that segment expense should generally continue to be reported separately in the current period. Conversely, if a segment expense is identified as significant in the current period, prior-period segment data presented for comparative purposes should generally be recast to reflect the newly significant expense even if that expense was not significant in the prior period. The Board expects that a public entity will consider recasting prior-period information for the significant segment expenses in a manner similar to how a public entity applies the recasting requirements in paragraphs 280-10-50-16 through 50-17. The Board also observes that a change in an expense’s significance in the current period may coincide with a change in the segment information that is regularly provided to the CODM.

BC83. 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.

BC84. Topic 280 requires that an entity disclose certain information about the measurement of reported profit or loss for each reportable segment, including the nature of any differences between those segment measurements and the entity’s consolidated income before taxes and discontinued operations, as well as an explanation of the nature of any changes from prior periods in the measurement methods used to determine reported segment profit or loss. While Topic 280 acknowledges that differences between segment measurements and consolidated amounts may be attributable to an entity’s allocation of centrally incurred expenses, the Board 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.

BC85. Investors’ feedback indicated that a disclosure explaining the method for allocating expenses to segments would not be particularly informative each reporting period and likely would become boilerplate or generic if required. However, many investors indicated that information about a significant change in a public entity’s segment expense allocation methods and measurement methods from one reporting period to the next would be helpful to signal a change in how the CODM assesses segment performance. Accordingly, the Board decided that a public entity should be required to explain the nature of significant changes from prior periods in the expense allocation methods and expense measurement methods used to determine segment profit or loss. For example, a public entity that manages its pension obligation at a corporate level may have previously allocated pension expense to its segments on the basis of cash payments made to the pension plan for purposes of reporting segment results to the CODM. If the entity changes this method of allocation in the current period to one that is based on the total of each segment’s salary expense relative to consolidated salary expense, it should disclose the nature of that change and its effect on segment measures.

BC86. Guidance in IFRS 8, Operating Segments, and Topic 280 has substantially converged. Both IFRS Accounting Standards and GAAP apply a management approach to identify an entity’s operating segments and apply the same quantitative thresholds to determine an entity’s reportable segments. While the existing disclosure requirements for each reportable segment have mostly converged, some differences do exist. For example, IFRS 8 requires that an entity disclose a measure of segment liabilities if those amounts are regularly reported to the CODM; GAAP does not.

BC87. The amendments in this Update require new disclosures under GAAP that are not required by IFRS Accounting Standards. The Board believes that the improvements in the segment disclosures of public entities that result from this Update respond to stakeholders’ feedback while maintaining convergence on the management approach to segment reporting.

BC88. The Board concluded that the amendments in this Update should be applied retrospectively unless it is impracticable to do so. The Board decided that reporting the segment disclosures for all comparative periods presented (that is, each period for which an income statement is presented) provides users with comparable segment information for evaluating trends upon adoption and most appropriately achieves the objective established by the Board in undertaking this project.

BC89. The Board indicated that while prospective application of the amendments in this Update would be less costly, it would result in public entities not reporting a full set of the comparable disclosures required under the amendments for all periods presented until the third year after adopting the amendments. Given that entities are generally expected to already have much of the prior-period segment information available to be able to implement the amendments, the cost of applying the amendments retrospectively is not anticipated to be prohibitive.

BC90. The Board also decided to provide specific guidance on how public entities should retrospectively apply the amendments in this Update. The Board decided that the segment expense categories disclosed in comparative periods should be those that correspond to the segment expense categories disclosed as a result of applying the significant expense principle in the period of adoption, regardless of whether those segment expense categories were significant or regularly provided to the CODM in the comparative periods. The Board concluded that this transition approach will result in the reporting of comparable significant segment expense categories for all periods presented, which is consistent with the reporting outcome of applying the recasting requirements in the periods after adoption when there is a change in the composition of an entity’s reportable segments or a change in the segment expenses that are regularly provided to the CODM.

BC91. In the period of adoption, the proposed Update would have required that a public entity qualitatively disclose changes (from the most recent comparative period) in the significant expense categories regularly provided to the CODM. Comment letter respondents expressed concerns about the cost of gathering that information. On the basis of that feedback, and because the disclosure would have provided only a one-time benefit at adoption, the Board decided not to require that proposed disclosure.

BC92. Most comment letter respondents indicated that a public entity generally will have the segment information available from its internal reporting systems such that an effective date of one year after the issuance of the Update provides sufficient time to adopt the amendments in this Update. Respondents also recommended that early adoption should be permitted. The Board considered that feedback in determining the effective date and concluded that the amendments in this Update should apply for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Board concluded that this effective date balances providing public entities with sufficient time to implement the amendments for the multiple periods covered by the retrospective transition and the length of time before investors are provided within additional segment disclosures.

The amendments to the FASB Accounting Standards Codification® in this Accounting Standards Update require improvements to the GAAP Financial Reporting Taxonomy and SEC Reporting Taxonomy (collectively referred to as the “GAAP Taxonomy”). Those improvements, which will be incorporated into the proposed 2024 GAAP Taxonomy, are available through GAAP Taxonomy Improvements provided at www.fasb.org, and finalized as part of the annual release process.