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25.7 Segment disclosures (after ASU 2023-07)

Publication date: 31 Mar 2024

us Financial statement presentation guide

Disclosures are required by ASC 280 for each period for which an income statement is presented, except for reconciliations of balance sheet amounts to the consolidated totals (which are only required for each year that a balance sheet is presented). Therefore, segment asset disclosures (excluding the reconciliations to the consolidated balance sheet totals) are required for each period an income statement is presented, even if a balance sheet is not presented for that particular period. Although a suggested format is presented in ASC 280-10-55-48, the guidance allows for flexibility. As discussed in ASC 280-10-50-27, segment disclosures follow the management approach, meaning they show the measures used by the CODM to assess performance and allocate resources. As such, adjustments, eliminations, and allocations that are made in the preparation of information for use by the CODM should be included in the reported segment information.

ASC 280 requires disclosure of certain general information related to segments. This includes information about the factors used to identify reportable segments, the types of products and services from which reportable segments generate revenues, and whether operating segments have been aggregated.

In addition, ASC 280 requires disclosure of the following:

Information about profit or loss and assets
As discussed in ASC 280-10-50-22 through ASC 280-10-50-24, this includes disclosures of the asset and certain income statement captions, including the performance measures regularly reviewed by the CODM.
Information about investments and expenditures
As discussed in ASC 280-10-50-25, this includes disclosures about investments in equity method investees and expenditures for additions to long-lived assets.
Information about the measurement of segment profit or loss and assets
As discussed in ASC 280-10-50-27 through ASC 280-10-50-29, this includes disclosures about transactions between segments, differences between segments, changes from prior year measurements, and asymmetrical segment allocations.
Reconciliations
As discussed in ASC 280-10-50-30 and ASC 280-10-50-31, this includes disclosures of reconciliations of the specific segment information to the amounts included in the consolidated financial statements.
Entity-wide information
As discussed in ASC 280-10-50-38, this includes disclosures of financial and other qualitative information categorized based on products and services, geographic areas, and customers, if not already provided elsewhere in the segment disclosures.

Single reportable segment entities

ASC 280-10-50-20 clarifies that all of the disclosures required in the segments guidance, including disclosing a measure of segment profit or loss (or multiple measures, if used to assess performance and decide how to allocate resources) and reporting significant segment expenses and other segment items, apply to public entities with a single reportable segment.

ASC 280-10-55-15D through 280-10-55-15F indicate that a reported measure of segment profit or loss used to manage the business and assess performance can be a measure that is not directly determined from the face of the consolidated financial statements (e.g., EBITDA or a measure based on different measurement methodologies). Similarly, the operating segment may not represent the entire entity; for example, it may exclude certain functional departments or a corporate headquarters. Accordingly, the segment disclosures required under ASC 280 may differ from the consolidated totals.

However, at the 2023 AICPA & CIMA Conference on Current SEC and PCAOB Developments, the SEC staff commented that it would expect the required measure of segment profit or loss to be consolidated net income for an entity with a single reportable segment managed on a consolidated basis.

If the operating segment is the entire entity, there may be a duplication of information in the segments footnote. In that case, the entity may reference the primary financial statements in the segments footnote rather than duplicating the information.

An example of the required disclosures for a single reportable segment entity is included in ASC 280-10-55-53 to 55, Example 4.

25.7.1 Segment disclosures—general information

ASC 280-10-50-21 provides the requirements for general segment information disclosures.

Excerpt from ASC 280-10-50-21

A public entity shall disclose the following general information:

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.

If a reporting entity combines non-reportable operating segments into an “all other” category, the types of products and services within the “all other” category should also be disclosed.

25.7.2 Segment disclosures—information about profit or loss and assets

ASC 280-10-50-22 through ASC 280-10-50-24 require disclosure of certain amounts that are either included in the measure of segment profit or loss or are separately regularly provided to the CODM, along with certain specified asset information, as follows. Also see FSP 25.7.5 for a further discussion of disclosure of expenses that are included in the measure of segment profit or loss.

Excerpt from 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:

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.

ASC 280-10-50-23

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.

ASC 280-10-50-24

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 ASC 280-10-50-26A.

25.7.2.1 Information about profit or loss

Any of the segment information specified in ASC 280-10-50-22 that is regularly provided to the CODM would need to be disclosed, even if the performance measure used by the CODM does not include the item. For example, if operating income is the measure of segment profitability used by the CODM to assess performance but segment interest expense is regularly provided to the CODM, segment interest expense should be disclosed because interest expense is one of the specific items identified for disclosure in ASC 280-10-50-22. Similarly, if any of the required disclosure items is included in the measure of segment profit or loss, it must be disclosed, even if it is not individually provided regularly to the CODM.

ASC 280 consistently uses the term “regularly provided” to the CODM when discussing the required disclosures. The FASB decided that using that term would likely result in more segment information being disclosed rather than focusing on information that is “regularly reviewed” by the CODM, which is the term used when determining operating segments, as described in FSP 25.4.2. The FASB also noted that the CODM may receive segment information by different means, for example by hardcopy, electronic means, or in regularly scheduled meetings. Given the focus on this phrase in the ASC, public entities should consider advances in their management information systems, which may easily provide more detailed information to the CODM that could potentially result in additional segment disclosures.

As noted in ASC 280, the disclosures are required at the reportable segment level. However, a reporting entity is not precluded from disclosing this information at a more detailed level if the more detailed presentation meets the objectives of ASC 280. For example, a reportable segment with three different but similar external revenue streams can choose to voluntarily provide disclosure of the different revenue streams.

Lastly, a public entity is required to disclose how the CODM uses each reported measure of segment profit or loss to assess performance and allocate resources to the segment, whether it discloses only one measure or multiple measures of segment profit or loss (see FSP 25.7.4.1).

Example FSP 25-7 illustrates when a reporting entity may need to separately report information that is not individually provided regularly to the CODM but included in the performance measure used by the CODM.

EXAMPLE FSP 25-7
Disclosing information not regularly provided to the CODM

FSP Corp internally reports the following discrete financial information to its CODM: revenue, operating income, total assets, volumes, and various industry statistics. Depreciation and amortization expense are components of both (1) cost of sales and (2) selling, general, and administrative expense, none of which are identified and reported separately to the CODM but are included in operating income. Operating income is the measure of segment profitability used by the CODM to assess performance and allocate resources of the segments.

Is FSP Corp required to disclose depreciation and amortization expense for its reportable segments?

Analysis

Yes. ASC 280-10-50-22 requires the disclosure of specified items that are included in the measurement of segment profit or loss that is regularly reviewed by the CODM, notwithstanding the fact that the individual items may not be separately identified for the CODM. Therefore, separate disclosure of depreciation and amortization expense by reportable segment is required since depreciation and amortization are components of operating income — the measure of profit or loss used by the CODM.

In addition, if the measure of segment profit or loss regularly reviewed by the CODM did not include depreciation and amortization, but depreciation and amortization were regularly provided separately to the CODM, then the amounts would still need to be disclosed.

25.7.2.2 Information about assets

Reportable segment-level asset information regularly provided to the CODM is required to be disclosed and included in the 10% asset test calculation consistent with ASC 280-10-55-12 through ASC 280-10-55-15, which indicates that items required by paragraph ASC 280-10-50-22 and ASC 280-10-50-25 that are regularly provided to the CODM must be disclosed. In some instances, a reporting entity’s CODM may not receive total assets information for each segment. For example, the CODM may only receive select asset data, such as inventory and accounts receivable. In this instance, total assets need not be disclosed for each reportable segment; rather, the sum of inventory and accounts receivable must be disclosed. This total should be disclosed as “segment assets,” and the total segment assets should be reconciled to the reporting entity’s total consolidated assets. A reporting entity should also disclose the composition of “segment assets.”

Ratios or a combination of financial information may be regularly reviewed by the CODM. For example, a reporting entity’s CODM may review net working capital but not its gross components (i.e., current assets and current liabilities). Although working capital has an asset component, the current asset component is not what is used by the CODM to assess performance and allocate resources. Therefore, the asset information is not required to be reported, nor is working capital required to be disclosed. Nonetheless, a reporting entity could elect to voluntarily report net working capital by reportable segment if it meets the objectives and basic principles of ASC 280. If it does so, the total of all reportable segments’ working capital should be reconciled to total consolidated working capital.

If no asset information is disclosed for a reportable segment, the fact and reason should be disclosed. Example FSP 25-8 illustrates segment reporting considerations when asset information is not regularly provided to the CODM.

EXAMPLE FSP 25-8
Segment reporting considerations when asset information is not regularly provided to the CODM

FSP Corp internally reports the following financial information to its CODM for each of its operating segments: revenue, operating income, net income, volume, and various industry statistics. Asset and other balance sheet information is not reported to the CODM.

Is FSP Corp required to disclose asset information for its reportable segments since that information is not reported to the CODM?

Analysis

No. Because asset information is not regularly provided to the CODM, the reporting entity would not be required to disclose segment asset information. If asset information is not reported, the fact and the reasons for not providing the information should be disclosed. ASC 280-10-50-27 states that “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.”

FSP Corp is required to disclose long-lived assets by geographic area pursuant to the entity-wide disclosure requirements of ASC 280-10-50-41, even if such information is not regularly provided to the CODM. See FSP 25.7.7.2.

25.7.3 Information about investments and expenditures

ASC 280-10-50-25 provides the required segment disclosures for investments in equity method investees and expenditures for additions to long-lived assets.

Excerpt from 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:
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.

ASC 280 requires these investment and expenditure disclosures because they improve a financial statement user’s ability to estimate the cash-generating potential and cash requirements of reportable segments.

An example disclosure is included in ASC 280-10-55-48, which illustrates a suggested format for certain disclosures required by ASC 280-10-50-22 and ASC 280-10-50-25.

25.7.4 Segment disclosures–information about measurement of segment profit/loss and assets

ASC 280-10-50-29 provides the disclosure requirements for information about the measurement of segment profit or loss and assets.

Excerpt from 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. A public entity shall disclose all of the following:

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.

When the measure of segment profitability is not consistent across operating segments, the public entity should provide a description of how segment profitability is measured for each reportable segment.

Question FSP 25-9
Because the premise of the management approach is that external segment reporting should correspond to a reporting entity’s internal reporting, would segment profit or loss information need to be modified if a reporting entity’s internal reporting is not in conformity with US GAAP?

PwC response

No. ASC 280-10-50-27 requires information to be reported on the same basis it is reported internally, even if the segment information is not in conformity with US GAAP or the accounting policies used in the consolidated financial statements. Examples of such situations include segment information reported on a cash basis or on a local GAAP basis for segments comprised of foreign subsidiaries, or when management uses EBITDA as its measure of segment profitability. The reporting entity should disclose the nature of any differences between the reportable segment’s measurements of profit or loss and assets and those measurements used in the consolidated financial statements for each reportable segment, as prescribed by ASC 280-10-50-29.

However, at the 2023 AICPA & CIMA Conference on Current SEC and PCAOB Developments, the SEC staff indicated that revenue from external customers is a specified amount that is defined in ASC 606, Revenue from Contracts with Customers. As a result, the SEC staff indicated that the disclosure of revenues from external customers for purposes of the segment disclosures under ASC 280 should generally align with the defined amounts in ASC 606, and noted that it has objected to amounts prepared under different measurement methods that may be regularly provided to the CODM being referred to as segment revenue, since those amounts are not consistent with what ASC 606 requires as revenue from external customers.

25.7.4.1 Information about measures of segment profit or loss

ASC 280-10-50-28A provides guidance on reporting measures of segment profit or loss used by the CODM in assessing segment performance.

ASC 280-10-50-28A

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.

If a CODM uses only one measure of a segment’s profit or loss to assess segment performance and decide how to allocate resources, segment profit or loss is reported at that measure in accordance with ASC 280-10-50-28A.

If a CODM uses multiple measures of a segment’s profit or loss to assess segment performance and decide how to allocate resources, ASC 280-10-50-28A allows the public entity to disclose multiple measures of segment profit or loss for each reportable segment. However, the public entity will have to disclose, at a minimum, the measure of segment profit or loss that is most consistent with the amounts included in its consolidated financial statements. For example, if the CODM uses gross profit and EBITDA as the measures of segment profit or loss, the public entity could only disclose gross profit since it represents the measure most consistent with the amounts included in its consolidated financial statements, or it could disclose gross profit and EBITDA, but it may not only disclose EBITDA.

ASC 280-10-50-28B

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.

In accordance with ASC 280-10-50-28B, if a public entity discloses an additional measure of segment profit or loss in the current period, it is required to disclose the measure for all periods presented if the measure was previously regularly provided to the CODM. It is also acceptable to disclose the additional measure of segment profit or loss for the prior periods even if the measure was not previously provided regularly to the CODM.

ASC 280-10-50-28C

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.

If a public entity chooses to disclose multiple measures of segment profit or loss, significant segment expenses, other segment items, and the disclosures in ASC 280-10-50-22 through ASC 280-10-50-24 and ASC 280-10-50-29 are required to be disclosed for each measure. Also, the total of each reported measure of segment profit or loss is required to be reconciled to the consolidated amount of income before taxes and discontinued operations. This reconciliation may be voluminous when a public entity has multiple reportable segments with each reportable segment having multiple measures of segment profit or loss. ASC 280 includes an example of a reconciliation for an entity with multiple measures of segment profit or loss in ASC 280-10-55-48, Example 3, Case B.

At the 2023 AICPA & CIMA Conference on Current SEC and PCAOB Developments, the SEC staff expressed a view that additional measures of segment profit or loss would be considered non-GAAP financial measures if the measures are not calculated in accordance with GAAP because ASC 280 does not require or expressly permit the disclosure of additional prescribed measures. Accordingly, these measures would not qualify for the exception in Regulation S-K Item 10(e) and therefore be subject to specific presentation, disclosure, and reconciliation requirements; prohibitions on certain adjustments; and a prohibition on the inclusion of a non-GAAP financial measure in the financial statements, including the footnotes. The SEC staff stated that registrants planning to early adopt the new segments guidance and present an additional measure of segment profit or loss that is not calculated in accordance with GAAP should contact the staff for further discussion.

As mentioned in FSP 25.7.2, a public entity is required to disclose how the CODM uses each reported measure of segment profit or loss to assess performance and allocate resources to the segment, whether it discloses only one measure or multiple measures of segment profit or loss.

25.7.4.2 Information about measures of segment assets

ASC 280-10-50-28 provides guidance on reporting measures of segment assets used by the CODM in assessing segment performance.

ASC 280-10-50-28

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.

If a CODM uses only one measure of a segment’s assets to assess segment performance and decide how to allocate resources, segment assets are reported at that measure in accordance with ASC 280-10-50-28.

If a CODM uses more than one measure of a segment’s assets to assess segment performance and decide how to allocate resources, ASC 280-10-50-28 requires the public entity to disclose the reported measure 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.

25.7.5 Segment expenses

Along with the explicitly required categories for amounts that are either included in the measure of segment profit or loss or are separately regularly provided to the CODM, as described in ASC 280-10-50-22 through ASC 280-10-50-24 (see FSP 25.7.2), ASC 280 also requires a public entity to disclose expenses for each reportable segment that are included in the measure of segment profit or loss.

25.7.5.1 Significant segment expenses

A public entity is required to disclose its significant segment expense categories and amounts for each reportable segment.

ASC 280-10-50-26A

A public entity shall disclose for each reportable segment the significant expense categories and amounts that are regularly provided to the chief operating decision maker and included in reported segment profit or loss. When determining the segment expense categories and amounts that shall be disclosed, a public entity shall first identify the expenses from the segment level information that is regularly provided to the chief operating decision maker and then disclose those segment expense categories and amounts that are significant. A public entity shall consider relevant qualitative and quantitative factors when determining whether segment expense categories and amounts are significant. When applying this guidance, a public entity shall evaluate for disclosure a segment expense that is regularly provided to the chief operating decision maker as well as a segment expense that is easily computable from information that is regularly provided to the chief operating decision maker. Paragraphs 280-10-55-15A through 55-15B provide additional guidance on determining whether segment expense amounts can be easily computed for purposes of applying the guidance in this paragraph.

A significant segment expense is an expense that is:

significant to the segment,
regularly provided to or easily computed from information regularly provided to the chief operating decision maker (CODM), and
included in the reported measure of segment profit or loss.

A significant segment expense is any significant expense incurred by the segment, including direct expenses, shared expenses, allocated corporate overhead, or interest expense that is regularly reported to the CODM and is included in the measure of segment profit or loss. If interest expense is a significant segment expense, it is required to be disclosed separately, even if the public entity otherwise discloses net interest income. This scenario may be more likely to exist for financial services entities.

If a public entity does not disclose any significant segment expenses for a reportable segment, it is required to disclose narratively the nature of the expenses used by the CODM to manage the segment’s operations in accordance with ASC 280-10-50-26C.

ASC 280-10-50-26C

An amount and qualitative description of the composition of other segment items shall be disclosed for each reportable segment even when a public entity does not separately report significant segment expense categories and amounts in accordance with paragraph 280-10-50-26A for one or more of its reportable segments. Additionally, if a public entity does not disclose significant expense categories and amounts for one or more of its reportable segments, it shall explain the nature of the expense information the chief operating decision maker uses to manage operations (see paragraph 280-10-55-15G).

A significant segment expense category may be disclosed for one reportable segment but not for others. Similarly, reportable segments may have different significant segment expense categories due to the nature of their operations.

If a segment expense is significant for one of the periods presented, we believe it should be disclosed for all periods presented even if it was not significant for all periods presented.

The total amount of significant segment expenses is not required to be reconciled to the reported amounts in the consolidated financial statements.

Significant

ASC 280 does not define the term “significant,” nor does it prescribe a specific quantitative threshold to assess significance. Rather, it requires significance to be assessed using both quantitative and qualitative factors depending on the facts and circumstances.

In addition, the significance of a segment item should generally be determined by reference to the segment’s results, not solely by reference to the amounts included in the entity’s consolidated financial statements. In the Basis for Conclusions of ASU 2023-07, the FASB stated that an item of segment information may be considered significant if its omission would change an investor’s understanding of the segment results to a degree that it would cause the investor to change its investment decisions. Additionally, the FASB 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,” which creates an expectation that amounts regularly provided to the CODM would be significant.

To assess whether that expectation could be overcome, we believe a public entity should consider all its facts and circumstances, including:

the qualitative and quantitative importance of the segment to the overall operations of the public entity,
the size and importance of the expense item to the segment’s results,
the variability (in relation to revenue) and volatility (period to period) of the expense item,
the size of the segment compared to other segments,
whether a segment is expected to grow significantly, or whether other relevant expected economic changes are expected for the segment,
whether segments are sharing or incurring the same expense,
the type of industry or business in which the segment is engaged and the associated key expense categories associated with it, and
the focus of stakeholders (e.g., during earnings calls).

A determination that an expense that is regularly provided to the CODM is not significant should be made on a holistic basis, as no one factor is determinative in assessing what would impact an investor’s decision making.

Regularly provided

ASC 280 consistently uses the term “regularly provided” to the CODM when discussing the required disclosures. The FASB decided that using that term would likely result in more segment information being disclosed rather than focusing on information that is “regularly reviewed” by the CODM, which is the term used when determining operating segments as described in FSP 25.4.2. The FASB also noted that the CODM may receive segment information by different means, for example by hardcopy, electronic means, or in regularly scheduled meetings. Given the focus on this phrase in ASC 280, public entities should review their reporting processes to confirm their understanding of what segment information is regularly provided to the CODM. Also, public entities should consider advances in their management information systems, which may easily provide more detailed information to the CODM that would potentially result in additional segment disclosures.

Easily computed

The term “easily computed” is not defined in ASC 280. However, it provides examples of when a segment expense would be considered easily computed. For example, if a segment revenue amount and a segment gross margin percentage are regularly provided to the CODM, segment cost of sales can be easily computed. If segment cost of sales is significant and included in the reported measure of segment profit or loss, it would be disclosed as a significant segment expense.

Another example, which is described in the Basis for Conclusions of ASU 2023-07, relates to interest revenue and net interest margin being regularly provided to the CODM for a financial segment, with interest expense considered easily computable from this information.

The FASB noted in the Basis for Conclusions of ASU 2023-07 that there could be other ways in which information can be considered easily computed.

25.7.5.2 Other segment items

A public entity is required to disclose, for each reportable segment, an aggregate amount and description of other segment items included in each reported measure of segment profit or loss beyond the significant segment expenses (as discussed in FSP 25.7.5.1), calculated as follows:


	Other segment items	=	Reported segment revenues minus Significant segment expenses (disclosed) minus Reported segment profit or loss

In other words, the amount of other segment items is the difference necessary to calculate the reported segment profit or loss measure.

ASC 280-10-50-26B

A public entity shall disclose for each reportable segment an amount for other segment items. The amount for other segment items is the difference between reported segment revenues less the segment expenses disclosed in accordance with paragraph 280-10-50-26A and reported segment profit or loss. A qualitative description of the composition of other segment items also shall be disclosed. Other segment items may include:

The total of a reportable segment’s expenses that are included in the reported measure(s) of a segment’s profit or loss but are not regularly provided to the chief operating decision maker.
The total of a reportable segment’s expenses that are included in the reported measure(s) of a segment’s profit or loss but are not disclosed in accordance with paragraph 280-10-50-26A. A public entity is not precluded from separately disclosing an expense that is not significant for one reportable segment but is significant for another of its segments. However, if a segment expense that is not significant is not separately disclosed, it shall be included as part of other segment items.
The total of a reportable segment’s gains, losses, or other amounts that also are included in each reported measure of a segment’s profit or loss.
The items and amounts required by paragraph 280-10-50-22 when those specified items and amounts are included within the reported measure of segment profit or loss but are not disclosed in accordance with paragraph 280-10-50-26A. For example, a public entity may report net income as the measure of a segment’s profit or loss. In that case, if income tax expense by segment is not regularly provided to the chief operating decision maker, it may be included within other segment items. However, income tax expense is still required to be disclosed in accordance with paragraph 280-10-50-22.

ASC 280-10-50-26C

A public entity is required to qualitatively describe the composition of its other segment items included in each reported measure of segment profit or loss for each reportable segment, even if the entity does not disclose any significant segment expenses. Also, if a public entity does not disclose any significant segment expenses for a reportable segment, it is required to disclose the nature of the expenses used by the CODM to manage the segment operations.

Similar to significant segment expenses, the total amount of other segment items is not required to be reconciled to the reported amounts in the consolidated financial statements.

An example of a disclosure of significant segment expenses and other segment items is included in ASC 280-10-55-48, Example 3, Case B.

25.7.6 Segment disclosures—reconciliations

Certain information included in the segment disclosures must be reconciled to the reporting entity’s consolidated financial measures. ASC 280-10-50-30 and ASC 280-10-50-31 provide the requirements for these reconciliations.

Excerpt from ASC 280-10-50-30 and ASC 280-10-50-31

A public entity shall provide reconciliations of all of the following:

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.

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 related to segment revenue and profit measures are required for each year that an income statement is presented, and reconciliations of balance sheet amounts are required for each year that a balance sheet is presented. An example is included in ASC 280-10-55-49, which illustrates the disclosures required by ASC 280-10-50-30(a) through ASC 280-10-50-30(c).

Question FSP 25-10
If a reporting entity’s measure of segment profitability is net income, should the segment’s total net income be reconciled to consolidated net income or to consolidated pretax income?

PwC response

ASC 280-10-50-30(b) allows a reporting entity whose measure of segment profitability is below the pretax income line (e.g., net income) to reconcile that measure, in aggregate for its reportable segments, to the corresponding consolidated total or the consolidated pretax total. In this case, we believe that the more meaningful presentation would be a reconciliation of the total of segment net income to the total consolidated net income.

ASC 280-10-50-30(b) requires that measures of segment profitability that are above the pretax line (e.g., operating profit) be reconciled to consolidated pretax income.

Question FSP 25-11
Can a reporting entity reconcile a non-GAAP measure of segment profitability (e.g., EBITDA) to the reporting entity’s consolidated EBITDA if that measure is further reconciled to pretax income?

PwC response

No. The following presentation of consolidated EBITDA would not be appropriate.


Reportable segment 1 EBITDA	$200
Reportable segment 2 EBITDA	150
Reportable segment 3 EBITDA	100
Subtotal reportable segments	450
Unallocated corporate overhead	(50)
Unallocated pension expense	(20)
Consolidated EBITDA	$380
Depreciation and amortization	(30)
Interest	(50)
Consolidated pretax income	$300

Under SEC rules, it is not appropriate to present the “Consolidated EBITDA” amount (i.e., $380), while it would be acceptable to present the “Subtotal reportable segments” amount (i.e., $450). Regulation S-K Item 10(e)(1)(ii)(C) precludes non-GAAP measures in the financial statements or financial statement footnotes. This Regulation S-K item indicates that non-GAAP measures exclude financial measures required to be disclosed by US GAAP. As such, the prohibition is not applicable to the measures of reportable segment EBITDA, as these amounts are required to be disclosed under ASC 280. However, this regulation and the SEC’s related interpretations would preclude use of consolidated EBITDA because such disclosure is not required by US GAAP. Rather, ASC 280-10-50-30 generally requires reconciliation to consolidated pretax income. In addition, if the reporting entity only has one reportable segment, similar prohibitions would apply. For additional guidance, refer to questions 104.01 through 104.06 of the SEC staff’s Compliance and Disclosure Interpretations on the use of non-GAAP financial measures.

A public entity is required to reconcile the total of each reported measure of segment profit or loss to the consolidated amount of income before taxes and discontinued operations. See Example 3, Case B in ASC 280-10-55-48 for an example of a reconciliation for an entity with multiple measures of segment profit or loss.

The total amount of significant segment expenses is not required to be reconciled to the reported amounts in the consolidated financial statements.

Similar to significant segment expenses, the total amount of other segment items is not required to be reconciled to the reported amounts in the consolidated financial statements.

25.7.7 Entity-wide segment disclosures

ASC 280-10-50-38 through ASC 280-10-50-42 require certain entity-wide disclosures, which include information about a reporting entity’s products and services, geographic areas, and major customers.

In some cases, these requirements may already be met through other disclosures in ASC 280, which requires these entity-wide disclosures even if the information is not regularly reviewed by the CODM, and even if the reporting entity has only one reportable segment.

The entity-wide disclosures are only required in annual financial statements.

Question FSP 25-12
Is there a threshold at which entity-wide disclosures are considered immaterial?

PwC response

Unlike reportable segment disclosures, there is no quantitative threshold for determining when entity-wide disclosures are required. Assessing what is material is a matter of judgment. Both qualitative and quantitative factors should be considered. When assessing entity-wide disclosures from a quantitative perspective, we believe it would be reasonable to apply a threshold similar to the 10% tests provided in ASC 280-10-50-12. For example, a reporting entity would disclose revenues from external customers attributed to an individual foreign country if revenues from that country are greater than 10% of consolidated revenues. However, qualitative factors may indicate that information is material even if it does not exceed 10% of the consolidated total.

25.7.7.1 Entity-wide segment information about products and services

ASC 280-10-50-40 requires entity-wide disclosures related to products and services.

ASC 280-10-50-40

A public entity shall report the revenues from external customers for each product and service or each group of similar products and services unless it is impracticable to do so. The amounts of revenues reported shall be based on the financial information used to produce the public entity’s general-purpose financial statements. If providing the information is impracticable, that fact shall be disclosed.

Some reporting entities have segment revenues that are derived from a broad range of different products and services. These reporting entities are still required to provide revenue information for the entity-wide disclosures related to its products and services, including when there is only one reportable segment.

Missing or inadequate disclosures of revenues from external customers for each product and service is a common issue raised in SEC staff questions. The SEC staff may also question entity-wide disclosures that are not consistent with how products are described or grouped in other sections of the reporting entity’s filings (e.g., Form 10-K, Item 1, Business, ASC 606 disaggregated revenue disclosure) or other external communications.

When determining the level at which products and services should be reported, it may be helpful to consider whether a majority of the characteristics described in ASC 280-10-50-11 for determining whether segments can be aggregated are met. For example, if all products have similar production processes, classes of customers, and economic characteristics as evidenced by similar rates of profitability, similar degrees of risk, and similar opportunities for growth, a reporting entity may conclude that all of its products are similar and that no additional disclosures by product type are necessary.

Question FSP 25-13
If a reporting entity has two operating segments based on products and services, and the two operating segments meet all of the criteria required for aggregation into a single reportable segment, must the entity-wide disclosures related to products and services be presented under ASC 280-10-50-40?

PwC response

It depends. Since the two operating segments meet the aggregation criteria, the nature of the products and services in each operating segment could be similar, and therefore the entity-wide disclosures related to products and services need not be provided. However, if the two segments each sold a range of products and services, the reporting entity would be required to present the entity-wide products and services-related disclosures.

Question FSP 25-14
If a reporting entity has one operating segment, and therefore one reportable segment, must the information required for entity-wide disclosures related to products and services be presented under ASC 280-10-50-40?

PwC response

It depends. A reporting entity may have only one operating segment (and thus only one reportable segment) that sells a range of products and services. In this case, the reporting entity would be required to present the entity-wide products and services-related disclosures. However, the reporting entity may conclude the entity-wide products and services-related disclosures are not necessary if it can demonstrate that its products and services are essentially similar using the aggregation criteria in ASC 280-10-50-11.

25.7.7.2 Entity-wide segment information about geographic areas

One of the purposes of entity-wide disclosures is to provide information about the geographic areas in which the reporting entity generates its revenues and holds its long-lived assets. ASC 280-10-50-41 provides the entity-wide disclosure requirements for geographic areas.

Excerpt from ASC 280-10-50-41

A public entity shall report the following geographic information unless it is impracticable to do so:

Revenues from external customers attributed to the public entity’s country of domicile and attributed to all foreign countries in total from which the public entity derives revenues. If revenues from external customers attributed to an individual foreign country are material, those revenues shall be disclosed separately. A public entity shall disclose the basis for attributing revenues from external customers to individual countries.
Long-lived 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 located in the public entity’s country of domicile and located in all foreign countries in total in which the public entity holds assets. If assets in an individual foreign country are material, those assets shall be disclosed separately.

The amounts reported shall be based on the financial information that is used to produce the general-purpose financial statements. If providing the geographic information is impracticable, that fact shall be disclosed. A public entity may wish to provide, in addition to the information required by the preceding paragraph, subtotals of geographic information about groups of countries.

An example is included in ASC 280-10-55-51 that illustrates the disclosures required by ASC 280-10-50-41. In addition to disclosure of material revenues and long-lived assets by country, a reporting entity may wish to provide subtotals of revenues and long-lived assets based on groups of countries in a geographic region, such as Europe, Asia, or North America. The guidance in ASC 280-10-55-22 allows for flexibility in determining how revenue can be attributed to geographic areas. Reporting entities may choose to attribute revenue on the basis of (1) the location of the customer, (2) the location to which the product is shipped (which may differ from the location where the customer resides), or (3) the location where the sale originated. The attribution method should be reasonable and consistently applied, and a reporting entity must disclose the basis it has selected for attributing revenue to geographic areas.

One of the reasons for requiring disclosure of long-lived assets (rather than total assets) in geographic areas is that long-lived assets are potentially at greater risk than current assets because they are difficult to move and relatively illiquid. ASC 280-10-55-23 indicates that a reporting entity can exercise judgment in defining long-lived assets but also indicates that the phrase “long-lived assets” implies tangible assets that cannot be readily removed, which would exclude intangible assets. Accordingly, goodwill and other intangible assets should not be included in the entity-wide disclosure of long-lived assets.

Example FSP 25-9 illustrates how to determine long-lived asset disclosures by geographic area.

EXAMPLE FSP 25-9
Reporting long-lived assets by geographic area

FSP Corp, a US-domiciled reporting entity with operations in 25 countries, has determined that it has two reportable segments (US and International) and that its long-lived assets located in two individual foreign countries (England and China) are material.

For which geographic areas should FSP Corp disclose tangible long-lived assets?

Analysis

FSP Corp should separately disclose tangible long-lived assets for the US, England, China, and all other foreign countries combined. Although the long-lived assets in the US may not be material, the guidance requires disclosure related to the reporting entity’s country of domicile.

Question FSP 25-15
If a reporting entity has reportable segments represented by the geographic areas US, Canada, and Asia, would the reporting entity be required to disclose revenue and long-lived asset information for each country in Asia, if material?

PwC response

Yes. Revenue and long-lived assets must be disclosed for each country in which such amounts are material. The individual country disclosures are required even if the Asian operations are not managed on an individual country basis (i.e., even if the CODM does not review or assess performance on an individual country basis).

If it is impracticable to provide the individual country information, that fact should be disclosed. These circumstances, however, are expected to be rare.

Question FSP 25-16
Should right of use (ROU) assets be included in the disclosure of long-lived assets by geography required by ASC 280-10-50-41?

PwC response

In many circumstances, an ROU asset would be included within the long-lived assets disclosure in ASC 280. An ROU asset is within the scope of ASC 360 and is similar to a tangible asset. ASC 280-10-55-23 does not define what is required to be included in long-lived assets and allows an entity to apply judgment. The reasons for requiring disclosure of long-lived assets (rather than total assets) in geographic areas is that long-lived assets are potentially at greater risk than current assets because they are difficult to move and relatively illiquid. For this reason, we believe ROU assets (e.g., buildings) should be included in the disclosure.

25.7.7.3 Entity-wide segment information about major customers

ASC 280-10-50-42 provides the entity-wide disclosure requirements for major customers.

Excerpt from ASC 280-10-50-42

A public entity shall provide information about the extent of its reliance on its major customers. If revenues from transactions with a single external customer amount to 10 percent or more of a public entity’s revenues, the public entity shall disclose that fact, the total amount of revenues from each such customer, and the identity of the segment or segments reporting the revenues. The public entity need not disclose the identity of a major customer or the amount of revenues that each segment reports from that customer. For purposes of this Subtopic, a group of entities known to a reporting public entity to be under common control shall be considered as a single customer, and the federal government, a state government, a local government (for example, a county or municipality), or a foreign government each shall be considered as a single customer.

One of the objectives of disclosing information about major customers is to provide a measure of the concentration of credit risk to the reporting entity. Neither the identity of a major customer or the amount of revenues that each segment reports from that customer is required to be disclosed.

ASC 280-10-55-52 includes an example that illustrates the disclosures required by ASC 280-10-50-42.

25.7.8 Interim period segment information

ASC 280-10-50-32 requires that nearly all of the annual numerical segment disclosures also be made on an interim basis. These include reported measures of segment profit or loss, total assets, revenues, interest revenue and expense, depreciation, depletion and amortization, unusual items, equity in income of investees, income tax expense or benefit, significant non-cash items other than depreciation depletion and amortization, equity method investments, and total additions to long-lived assets. Significant segment expenses and other segment items disclosures are also required for interim periods.

The reconciliation of the total of reportable segments’ measures of profit or loss to consolidated income before income taxes and discontinued operations is also required for interim periods. However, the reconciliations of the total of reportable segments’ revenues and assets to their corresponding consolidated totals are not required for interim periods.

ASC 280-10-50-32 and ASC 280-10-50-33 provide the disclosure requirements for condensed financial statements of interim periods including:

Excerpt from ASC 280-10-50-32

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.

ASC 280-10-50-33

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.

Entity-wide disclosures, including disclosures about major customers, are not required in interim periods. However, if a reporting entity were to transact a significant amount of business with a new (or previously insignificant) customer during an interim period that was expected to continue in future periods, management should consider providing the disclosures required by ASC 280-10-50-42.

During an interim period, a reporting entity may change its organizational structure, or a previously immaterial segment may become material. See FSP 25.7.9.2 for guidance.

25.7.9 Recasting of information for changes in segments

The information regularly reviewed by the CODM may change for a number of reasons, including when a reporting entity changes the structure of its internal organization. This could result in changes to operating segments and changes to the determination of reportable segments. If a reporting entity’s reportable segments change in the current period, corresponding information for earlier periods should be recast and disclosed in the current period financial statements. This would include information for interim periods so that all segment disclosures are comparable. This requirement applies to all disclosures unless it is impracticable to do so. A change in reportable segments should be accompanied by disclosure of the reasons for the change and, when appropriate, that the change has been reflected retrospectively.

ASC 280 does not specify how to analyze organizational changes to determine when a change in operating or reportable segments is necessary. However, the determination of operating segments is based on the information regularly reviewed by the CODM. As a result, if there are changes in how the CODM allocates resources and assesses performance, or changes to how the information is presented to the CODM, a reporting entity will likely need to reassess its operating and reportable segments.

When determining whether there has been a change that could impact the determination of its operating segments, the reporting entity may consider whether there has been a change in the following:

The CODM
The information regularly reviewed by the CODM
The organizational structure
The individuals who regularly meet with the CODM
The budgeting process or level at which budgets are reviewed by the CODM
The information regularly reported to the board of directors
The information the reporting entity communicates to external parties such as investors, creditors, and customers

There are several situations that require recasting of segment information unless it is impracticable to do so, including:

When there is a change in the composition of reportable segments

We believe this is the case whether there is an increase or decrease in reportable segments.
When there is a change in the identification of significant segment expenses

For example, if research and development (R&D) expense is determined to be a significant expense in the current period, but was not in the prior period, the segment information would be recast to reflect R&D expense as a significant expense in the prior period.

Recasting of prior period information is not required for a change in the measurement of a reported segment profit or loss measure; however, ASC 280 encourages public entities to show all segment information on a comparative basis to the extent practicable. If the information is not recast for such a change, ASC 280-10-50-36 requires additional 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.

Example FSP 25-10 illustrates a change in segment performance measures.

EXAMPLE FSP 25-10
Change in segment performance measures

FSP Corp has five operating segments, which are also its reportable segments. Historically, the internal reporting package regularly reviewed by the CODM included certain unallocated items, such as interest income/expense and pension service costs. These unallocated items were disclosed in FSP Corp’s footnotes as part of its reconciliation of total segment profits/losses to consolidated net income. The CODM recently requested that pension service costs be allocated to the five operating segments based on employee head count as the CODM believes pension service cost should be considered in assessing segment performance and in making resource allocation decisions. The internal reporting package for the period reflected this change.

How should FSP Corp reflect this in its segment disclosures?

Analysis

The change in allocation represents a change in the measure of segment performance. FSP Corp should reflect this new segment measure in the period the change occurred. Because this is not a change in the identified reportable segments, FSP Corp is not required to recast prior periods to reflect this change, but it would be preferable to do so. In either case, FSP Corp should disclose the nature of the change in the segment performance measure and the effect the change has on the measure of segment profit or loss, as required by ASC 280-10-50-29(d).

While the entity-wide disclosure provisions of ASC 280 do not discuss the recasting of entity-wide disclosures, we believe that the entity-wide information from period to period should be comparable. Accordingly, we believe that the guidance contained in ASC 280-10-50-16 and ASC 280-10-50-17, as well as the recasting provisions of ASC 280-10-50-34 and ASC 280-10-50-35, should be applied to entity-wide disclosures.

ASC 280-10-50-17 also requires recasting of prior period segment information (unless impracticable) when a previously insignificant operating segment becomes significant (i.e., the operating segment meets one of the 10% tests).

Example FSP 25-11 illustrates an analysis of segments when their relative significance changes year over year.

EXAMPLE FSP 25-11
Change in segment significance

FSP Corp has eight operating segments, none of which qualify for aggregation. Five of the segments were disclosed as reportable segments in 20X1, based on the 10% tests. The aggregate external revenues of these reportable segments exceeded 75% of FSP Corp’s consolidated revenues. The remaining three operating segments were combined in an “all other” category. In 20X2, one of the three operating segments that was included in the “all other” category in 20X1 became quantitatively material (i.e., it exceeded the threshold for one of the 10% tests). Also, in 20X2, one of the five 20X1 reportable segments was no longer quantitatively material.

How should FSP Corp reflect these changes in its segment disclosures?

Analysis

The operating segment that is now material should be presented as a reportable segment. Pursuant to ASC 280-10-50-17, when FSP Corp presents prior period segment data in the 20X2 financial statements, segment data for all prior periods must be recast to reflect the new reportable segment as a separate reportable segment, unless it would be impracticable to do so.

For the operating segment that no longer meets the quantitative thresholds (assuming the operating segment is not considered to be of continuing significance), disclosure of its individual results need not be made in 20X2. In this case, prior period segment disclosures could also be recast to conform to the current period presentation (provided the threshold for the 75% revenue test is met for all periods). In accordance with ASC 280-10-50-16, if management views the segment to be of continuing significance, that segment’s disclosures should continue to be made.

Example FSP 25-12 illustrates factors to consider in assessing whether to recast previous periods’ segment information when a reporting entity changes its internal financial reporting without changing its organizational structure.

EXAMPLE FSP 25-12
Consideration of changes in internal financial reporting without changes in organizational structure

FSP Corp has four operating segments. It has decided to move one of its product lines from one operating segment (Segment X) to another (Segment Z) for internal reporting purposes. FSP Corp did not change its management structure and has determined that it still has the same four operating segments. The only change to the CODM package as a result of the internal financial reporting change is the inclusion of the product line’s financial information within Segment Z reporting and its removal from Segment X reporting as of the date of the change.

How should this change in internal financial reporting be considered in FSP Corp’s segment assessment?

Analysis

FSP Corp should consider recasting its previously disclosed segment information if the changes to the segment assets and operating results as a result of reclassifying the assets, liabilities, and results of operations materially affect the trend in asset balances and/or the reported results. If, however, the segment information does not materially change the segments’ financial information, generally a reporting entity is not expected to recast the previously-reported segment information.

In determining whether the change to the Segment X and Z financial information is material, FSP Corp might consider, among other things, whether the CODM package (or other information regularly reviewed by the CODM) has been adjusted retrospectively or whether the product line is considered a separate asset group (as defined in ASC 360). If the product line is a separate asset group, this may indicate that the composition of the segments has changed significantly and prior period segment information should be recast.

25.7.9.1 When to reflect changes in segment reporting

Changes in reportable segments as a result of changes in organization, the information regularly reviewed by the CODM, the significance of an operating segment (from immaterial to material), or the aggregation of operating segments should only be reflected when the financial statements include the period in which the change occurred. Changes in reportable segments arising after a reporting entity’s period-end but before the issuance of the reporting entity’s financial statements should be treated as an unrecognized (i.e., “Type II”) subsequent event (see FSP 28.6). However, the reporting entity should disclose that a change in reportable segments will occur in subsequent periods and the reasons for the change.

Example FSP 25-13 and Example FSP 25-14 provide illustrations of the timing of disclosure of segment reporting changes.

EXAMPLE FSP 25-13
Change in segment structure subsequent to year end

In the fourth quarter of 20X1, FSP Corp’s management determined that it will change the way it manages and operates the reporting entity and is in the process of modifying FSP Corp’s information system to produce financial information to support the new structure. The changes will require FSP Corp to recast its segment reporting. It is anticipated that the modification to the system will be completed in the first quarter of 20X2, at which point management will reorganize its operations and reporting structure and begin to manage its operations under its new segment structure.

How should this planned change affect FSP Corp’s 20X1 segment disclosures?

Analysis

FSP Corp should disclose its 20X1 reportable segment information under the reporting structure in place during 20X1. It should not recast its segment disclosure using the new reporting structure until the first quarter of 20X2, the period in which management changes the way it manages and operates the business.

EXAMPLE FSP 25-14
Changing operating segments for financial reporting purposes prior to changing the CODM package

FSP Corp manufactures watches in three product lines: low-, medium-, and high-end. Each of these product lines has two distinct watch types (sport and formal). FSP Corp identified each product line as an operating segment. Each of the product lines has a vice president who reports to the CEO, who is the CODM. Monthly meetings are held between the vice presidents of the three product lines and the CODM to discuss the results for each product line. The CODM package and information regularly reviewed at the monthly meetings consists of revenue and expenses by product line.

During 20X1, the existing CEO retired and the new CEO became the new CODM. The new CODM changed certain aspects of FSP Corp’s internal reporting roles and marketing strategy and began meeting with the product managers to assess performance of each of the watch types (sport and formal) within each product line in order to gain better insight into how the business is operating. In addition, the CODM implemented a new marketing campaign which focused on the sport and formal type watches versus the previous marketing campaign, which focused only on the three distinct product lines. The new CODM began allocating resources at the watch-type level (sport and formal) rather than at the product-line level (low-, medium-, and high-end). Although no changes have yet been made to the CODM reporting package, the CODM is now regularly receiving watch-type operating profitability information through regular meetings with the six product managers. The product managers oversee the financial results of each watch type and provide additional reports to the CODM. In the first quarter of 20X2, FSP Corp intends to change the formal CODM package to reflect the information on the six distinct businesses that the new CEO is regularly reviewing, rather than just the three that the previous CEO regularly reviewed.

What impact should the change in information being regularly reviewed by the CODM have on FSP Corp’s determination of operating segments?

Analysis

The change in the CODM warrants a review of the operating segments given the new CODM’s different management style and regular review of new or different information when assessing performance and allocating resources. In order to support a change in operating segments prior to a formal change in the CODM package, FSP Corp would need to demonstrate that significant changes have been made in how the CODM is managing the business.

In this example, FSP Corp changed the manner in which operating results are regularly reviewed by the CODM in 20X1. In addition to meeting with the vice presidents of the three distinct product lines, the new CODM now also meets with the product managers of the six individual watch types. Additionally, FSP Corp changed the way that it markets its products, and the CODM is using more disaggregated financial information to manage the business. FSP Corp does not view these changes as temporary and intends to make the change to the CODM package in the near future to reflect the way the new CODM views the business.

Based on these factors, it would appear appropriate to conclude that FSP Corp had a change in its operating segments during 20X1.

25.7.9.2 Changes of reportable segments during an interim period

As discussed in ASC 280-10-50-34, a reporting entity may change its organizational structure during an interim period. Alternatively, a previously immaterial segment may become material. If that change results in a change in reportable segment information in the interim period, the financial statements should be prepared on the basis of the reportable segments in use during the current interim period for both the current and comparative interim periods. The previously issued interim financial statements of the current fiscal year are not required to be amended. However, the interim information for those previously filed quarters will need to be recast (unless it is immaterial or impracticable) when the quarters are presented for comparative purposes in the following year’s interim filings.

Question FSP 25-17
If changes in a reporting entity’s internal management reporting structure changes its basis for segment reporting during an interim period, must full footnote disclosure be provided in the interim period condensed financial statements as if the recasting had been reported in a complete set of annual financial statements included in the Form 10-K?

PwC response

No. Full footnote disclosures are not required. However, ASC 280-10-50-34 and ASC 280-10-50-35 require that the limited interim period information be recasted and provided in the quarterly report. ASC 280-10-50-32(e) also requires the interim financial statements to describe differences in the basis of segmentation or in the basis of measurement of segment profit or loss from the last annual report. Certain line items required for the annual footnote disclosure by ASC 280-10-50-22 and ASC 280-10-50-25 may be omitted from the condensed financial statements included in the interim period quarterly report.

25.7.9.3 Recasting of prior period segment information is impracticable

ASC 280-10-50-35 requires additional disclosures when retrospective application of changes to segment information 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 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.

ASC 280-10-50-17 states that “information is impracticable to present if the necessary information is not available and the cost to develop it would be excessive.” We expect such situations to be rare as it is usually possible to obtain the necessary prior period information. The SEC staff has been skeptical that recasting prior periods is impracticable.

Similar to changes to reportable segments made during annual periods, if prior year interim segment information is not recast, then the current period segment disclosures should be presented on both the old basis and new basis, unless it would prove impracticable to do so.

25.7.9.4 Partial disposal of a reportable segment

A reporting entity may sell or dispose of a part of a reportable segment that does not qualify for presentation as a discontinued operation. After the sale or disposal, the remaining portion of the reportable segment continues to be a reportable segment. ASC 280 does not specifically address whether any changes should be made to the segment disclosures for such a transaction, either for the period of disposition or the comparative prior periods. We believe that the presentation is dependent on the facts and circumstances. Generally, we would expect that it would not be necessary to recast the reportable segments to exclude the disposal group. However, if the time between when the decision was made to dispose of the disposal group and the actual disposition was relatively long, senior management was separately monitoring or managing the operation to be sold or disposed of, and/or management changed its reporting and organizational structure over the business to be disposed of, it may be appropriate to conclude that there had been a change in operating segments when such a change was made and recast the affected reportable segments.

PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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25.7 Segment disclosures (after ASU 2023-07)

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25.7 Segment disclosures (after ASU 2023-07)

25.7.1 Segment disclosures—general information

25.7.2 Segment disclosures—information about profit or loss and assets

25.7.2.1 Information about profit or loss

25.7.2.2 Information about assets

25.7.3 Information about investments and expenditures

25.7.4 Segment disclosures–information about measurement of segment profit/loss and assets

25.7.4.1 Information about measures of segment profit or loss

25.7.4.2 Information about measures of segment assets

25.7.5 Segment expenses

25.7.5.1 Significant segment expenses

25.7.5.2 Other segment items

25.7.6 Segment disclosures—reconciliations

25.7.7 Entity-wide segment disclosures

25.7.7.1 Entity-wide segment information about products and services

25.7.7.2 Entity-wide segment information about geographic areas

25.7.7.3 Entity-wide segment information about major customers

25.7.8 Interim period segment information

25.7.9 Recasting of information for changes in segments

25.7.9.1 When to reflect changes in segment reporting

25.7.9.2 Changes of reportable segments during an interim period

25.7.9.3 Recasting of prior period segment information is impracticable

25.7.9.4 Partial disposal of a reportable segment

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Suggested terms

Suggested guidance

25.7 Segment disclosures (after ASU 2023-07)

25.7.1 Segment disclosures—general information

25.7.2 Segment disclosures—information about profit or loss and assets

25.7.2.1 Information about profit or loss

25.7.2.2 Information about assets

25.7.3 Information about investments and expenditures

25.7.4 Segment disclosures–information about measurement of segment profit/loss and assets

25.7.4.1 Information about measures of segment profit or loss

25.7.4.2 Information about measures of segment assets

25.7.5 Segment expenses

25.7.5.1 Significant segment expenses

25.7.5.2 Other segment items

25.7.6 Segment disclosures—reconciliations

25.7.7 Entity-wide segment disclosures

25.7.7.1 Entity-wide segment information about products and services

25.7.7.2 Entity-wide segment information about geographic areas

25.7.7.3 Entity-wide segment information about major customers

25.7.8 Interim period segment information

25.7.9 Recasting of information for changes in segments

25.7.9.1 When to reflect changes in segment reporting

25.7.9.2 Changes of reportable segments during an interim period

25.7.9.3 Recasting of prior period segment information is impracticable

25.7.9.4 Partial disposal of a reportable segment

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