The FASB Project: Disclosure Improvements in Segment Reporting
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The FASB Project: Disclosure Improvements in Segment Reporting
Introduction
The Financial Accounting Standards Board (FASB) is responsible for setting and
developing standards of financial accounting and reporting to provide guidance and educate the
public, regulators, auditors, and other users of financial reports. Segment reporting is an essential
aspect of financial accounting that aims to present insights into the various activities that a
company deals with, as well as various aspects of its revenue. The current segment reporting
framework/standard is the ASC 280, which has been scrutinized by various parties for its
ineffectiveness and insufficiencies in the recent past. Hence, this paper focuses on one of
FASB’s current projects, “Disclosure Improvements in Segment Reporting", which is an
amendment aimed at increasing the efficiency of the current standard "ASC 280" by identifying
what the project is, where it has reached, if it is likely to be implemented, and what it means to
business.
Project Title: “Disclosure Improvements in Segment Reporting"
Objective: To enhance the usefulness of segment disclosures in giving investors information
regarding diverse segments in the company and their performance.
History and Background
Segment reporting has always been an essential aspect of financial statements because it
helps stakeholders understand and evaluate the results and position of different segments of a
company. The current standard is ASC 280, which was set to promote disclosures of operating
segments to ensure that companies present the information in a clear manner (Chuwonganant et
al., 2023). Nevertheless, in recent years, investors, regulators, and other stakeholders have
expressed concerns about the sufficiency and relevancy of segment information. They claimed
the current standards fail to offer adequate information and analysis of the company’s financial
outlook and the risks of segments, suggesting the information that is disclosed to be inaccurate or
insufficient in helping investors make decisions. Due to these issues, the FASB proposed the
"Disclosure Improvements in Segment Reporting" (FASB, 2023). It was necessary to change the
existing disclosure regulations to make them more significant and useful since the current
standard was not effective enough in providing the relevant information.
The Current Status of the Project to be Amended
Based on the latest available information, the project is still in the exposure draft stage. The
FASB has published an exposure draft and is considering the comments received at the time. The
proposed amendments to ASC 280 include several key changes:
i. Enhanced Disclosure Requirements
Business organizations will need to disclose additional information regarding segment revenues,
expenses, cash flows, segment assets, and segment profit or loss (PwC, 2023; KPMG, 2023).
Further disclosures regarding the segment level of operation, including assets and liabilities and
capital expenditure exceeding a specified amount, will also be required. This concept of
enhanced disclosures aims to enable the presentation of more comprehensive information about
the financial position and business performance of each segment to help stakeholders
comprehend the various risks and rewards related to various business segments of a business
entity.
ii. Clarification of the Operating Segment Definition
Another modification is concerned with the operating segment definition, where its identification
is based on the concept of the chief operating decision maker (CODM) regarding how he
manages and measures performance. This will help to facilitate a more standardized approach in
the process of segment identification across the entities.
iii. Improved Comparability
The amendments seek to align the presentation of segment information with that of the context
of the businesses to which they belong, thereby improving the comparability of segment
information across firms and industries (PwC, 2023).
iv. Reconciliation of Segment Information
Also, the amendments extend the implementation of the requirements to reconcile segment
information and the consolidated financial statements to improve the comprehensibility of how
the segment data relates to the financial performance of the entity (KPMG, 2023). This will help
to increase the level of transparency, which will aid in the explanation of the correlation between
segmental and overall financial outcomes.
v. Geographic and Customer-Based Reporting
The amendments also address new mandatory disclosures on geographic and customer segments
where such information should be provided, even if such information is not utilized by the
CODM (PwC, 2023). This change provides further transparency regarding geographical
distribution and customer exposure, which may be insightful when assessing regional
vulnerabilities.
vi. Increased Transparency
Written reports will have to provide more detailed information on what drives the companies to
establish their operating segments and the key performance indicators of these segments (PwC,
2023). This will offer a greater level of detail and give an opportunity to look at different
business segments with distinct efficiency and potential for development.
According to the work plan given, the project is expected to be completed by the end of
2024, with the implementation period extending to give companies time to meet the new
standards.
Relevant GAAP and Current Standards
The primary standard of this project is the ASC 280, 'Segment Reporting.' Under the
current standards outlined by ASC 280, firms report basic information about their segments, such
as revenues, profit or loss, and some assets. However, these disclosures are generally limited and
reluctant, and they often fail to disclose information with details, which leads to more demands
for greater and qualitative reporting.
Effects/Impacts of the Proposed Changes
These proposed changes that affect segment reporting under ASC 280 will not go
unnoticed by different stakeholders, such as companies, investors, auditors, and regulators.
Companies
Increased Reporting Burden: Companies will be placed under increased pressure to prepare
and release segment information with a higher level of detail. This will call for extra time
and effort in getting segment-level data, analyzing it, and reporting it in detail (Botosan,
Huffman & Stanford, 2021).
Improved Transparency and Accountability: These improvements will result in the
expansion of current disclosures in the financial statements, which would contribute to the
improvement of a company’s image and the confidence reposed in it by investors (FASB,
n.d.). Management could also experience higher levels of oversight in terms of segment
performance and management choices.
Reduced Information Asymmetry: The changes proposed should assist in reducing the
difficulties of acquiring information by investors and the management of companies,
leading to better functioning of equity markets (FASB, n.d.).
Auditors
Increased Audit Complexity: The auditors will have to comply with the new conditions and
create guidelines for ensuring the adequacy of the segment statements and the entity’s
separation of the segment information (PwC, 2023). This will entail extra audit work and
probably higher audit charges that need to be incorporated into the fee structure.
Enhanced Audit Quality: Detailed disclosures will also serve the interests of auditors better
by presenting them with better information, which will enhance the quality of the audit and
the reliability of the financial statements (FASB, n.d.).
Regulators
Enhanced Oversight: Regulators will have more accurate and conforming information so as
to enhance their monitoring and compliance with segment reporting. This will enhance the
quality of financial reporting and, at the same time, enhance investors' protection (Botosan,
Huffman & Stanford, 2021).
Facilitated Regulatory Analysis: Standardized and detailed information regarding segments
will help the regulators analyze the industry as a whole and highlight specific segments that
may be of concern, or that need to be dealt with by the regulators (PwC, 2023).
Competitive Disadvantage: Greater disaggregation of segment information can lead to
leakage of competitively sensitive information to competitors, which can be a threat
where there is intense strategic and financial confidentiality (Chuwonganant et al., 2023;
PwC, 2023).
Investors
Better Decision-Making: This proposal will benefit investors because it would enhance the
quality of segment information by increasing the level of detail, thus helping investors to
make informed decisions. Additional disclosure will positively affect the investment
decision by giving a better outlook on the various operations and financial position of a
company (FASB, n.d.).
Enhanced Comparability: When implemented, segment reporting will lead to comparability
across firms and industries, thus assisting investors in analyzing firms and their values.
(PwC, 2023)
Conclusion
In conclusion, FASB's project of improving segment reporting disclosures is one of the
important steps to improve the quality of financial information. The current proposed changes to
ASC 280 seek to address the issues of how segment information is reported by offering accurate
and comparable detailed information because various bodies need the data, including the
companies, investors, auditors, and regulators. The proposed changes will place a great burden
on the companies regarding reporting, but the advantages, which include better transparency,
accountability, and decision-making, surpass the disadvantages. The proposed changes to the
segment reporting requirements will help in the preparation of improved and more transparent
financial reports, and this will aid in meeting the FASB's goal of providing guidance and
education to the public regarding financial accounting standards. Financial reporting will
continue to change as time progresses, and the nature of business changes in order to meet the
various needs of the stakeholders and enhance the credibility of the financial reports generated.
References
Botosan, C. A., Huffman, A., & Stanford, M. H. (2021). The state of segment reporting by US
public entities: 1976–2017.EAccounting Horizons,E35(1), 1–27.
Chuwonganant, C., Olibe, K. O., Strawser, J. W., & Strawser, W. R. (2023). Revisiting the
impact of ASC 280: Liquidity, operating performance, and market value.EJournal of
Corporate Accounting & Finance,E34(3), 318-336.
Edmonds, M. A., Smith, D. B., & Stallings, M. A. (2018). Financial statement comparability and
segment disclosure.EResearch in Accounting Regulation,E30(2), 103–111.
FASB (March 10th,2023). 2021 FASB Agenda Consultation Report.
https://rpc.cfainstitute.org/-/media/documents/comment-letter/2020-2024/
FASB_Segments_Final.pdf
FASB (n.d.). ACCOUNTING STANDARDS UPDATE 2023-07—Segment Reporting (Topic
280): https://www.fasb.org/Page/Document?pdf=ASU%202023-
07.pdf&title=ACCOUNTING%20STANDARDS%20UPDATE%202023-
07%E2%80%94Segment%20Reporting%20(Topic%20280):%20Improvements%20to
%20Reportable%20Segment%20Disclosures%22
KPMG (October 2022). “FASB proposes improvements to segment disclosures.”
https://kpmg.com/us/en/frv/reference-library/2022/fasb-proposes-improvements-to-
segment-disclosures.html#:~:text=Proposals%20would%20require%20disclosure
%20of,in%20annual%20and%20interim%20reporting.&text=The%20proposed%20ASU
%20addresses%20stakeholder,and%20frequency%20of%20segment%20disclosures.
KPMG. (2023). ASU 2023-07 amends Topic 280 to require new segment disclosures, including
significant segment expenses.
https://kpmg.com/kpmg-us/content/dam/kpmg/frv/pdf/2023/fasb-issues-asu-requiring-
new-segment-disclosures-1.pdf
PwC. (2023). In-depth: Proposed Changes to Segment Reporting.
https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/financial_statement_/
financial_statement___18_US/chapter_25_segment_r_US/
251_chapter_overview_US.html#:~:text=ASU%202023%2D07%20also
%20updated,previously%20reported%20information%20was%20incorrect.
