September 2024 update: Views from SEC staff
At the 2023 AICPA & CIMA Conference on Current SEC and PCAOB Developments, the Securities and Exchange Commission (SEC) staff provided remarks on the new segment standard, including:
- While the new segment standard allows the presentation of multiple measures of segment profit or loss, measures that are presented in addition to the one measure most consistent with U.S. GAAP and that are not calculated in accordance with U.S. GAAP would be considered non-GAAP.
- Consolidated net income is the measure of segment profit or loss required to be disclosed for an entity with a single reportable segment when the entity is managed on a consolidated basis (that is, the entity has a single operating segment).
As stakeholders continued adoption efforts, implementation questions arose about topics addressed in the original article below. In recent discussions, the SEC staff provided certain clarifications:
Non-GAAP measures
- While Item 10(e) of Regulation S-K generally prohibits presentation of non-GAAP measures on the face of the financial statements or in the accompanying notes, the staff will not object if an entity includes in its segment footnote additional measures of profit or loss that are not calculated in accordance with GAAP provided the entity fully complies with the non-GAAP rules in Item 10(e), Regulation G, and Accounting Standards Codification (ASC) 280.
- The additional non-GAAP disclosures required by Item 10(e) and Regulation G can be provided in the financial statement footnotes or elsewhere in the filing (for example, in management’s discussion and analysis); however, there should not be a cross-reference in the financial statement footnotes to elsewhere in the filing.
Single reportable segment entities managed on a consolidated basis
- The staff expects that a single-segment entity will present consolidated net income as its required measure of segment profit or loss, but the entity is permitted to present additional measures that are not consolidated net income.
- The staff expects that a single-segment entity whose chief operating decision-maker (CODM) is not one of the Form 10-K or Form 10-Q certifying officers (CEO or CFO) will still conclude consolidated net income is the measure of segment profit or loss required to be disclosed.
- The new segment standard contemplates situations where a single-segment entity is not managed on a consolidated basis (for example, ASC 280-10-55-15D); however, the staff believes the mere exclusion of a corporate headquarters or a functional department from a measure of profit or loss reviewed by the CODM is not determinative, and the entity must carefully evaluate ASC 280-10-50-4.
Other SEC staff observations
Though not directly related to their conference remarks, the staff provided additional thoughts including:
- ASC 280 does not require significant segment expenses to be calculated in accordance with GAAP. Other SEC rules and regulations might require additional disclosures to provide further context (for example, Rule 4-01(a) of Regulation S-X).
- An entity can disclose different measures of segment profit or loss for different reportable segments as long as the CODM uses the measures to allocate resources and assess performance.
Public entities should take note of a new FASB ASU that changes segment reporting requirements.
Note to readers
This Take Into Account article was updated on Dec. 15, 2023, to incorporate views expressed by the Securities and Exchange Commission (SEC) staff during the 2023 AICPA & CIMA Conference on Current SEC and PCAOB Developments.
In under a minute
On Nov. 27, 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis.
The final ASU enacts the following notable changes:
- Public entities are required to disclose significant expense categories and amounts for each reportable segment. Significant expense categories are derived from expenses that are 1) regularly reported to an entity’s chief operating decision-maker (CODM) and 2) included in a segment’s reported measures of profit or loss.
- Public entities must disclose an amount for “other segment items,” representing the difference between 1) segment revenue less significant segment expenses and 2) the reportable segment’s profit or loss measures. A description of the composition of “other segment items” also is required.
- Public entities are required to disclose the title and position of the CODM and explain how the CODM uses the reported measures of profit or loss to assess segment performance.
- The ASU requires interim disclosure of certain segment-related disclosures that previously were required only on an annual basis.
- The ASU clarifies that entities with a single reportable segment are subject to both new and existing segment reporting requirements under Topic 280. It also clarifies that an entity is permitted to disclose multiple measures of segment profit or loss, provided that certain criteria are met.
The ASU is effective for fiscal years beginning after Dec. 15, 2023, and interim periods within fiscal years beginning after Dec. 15, 2024. Entities must adopt the changes to the segment reporting guidance on a retrospective basis. Early adoption is permitted.