The Financial Accounting Standards Board issued a final accounting standards update to its guidance that will increase requirements for how public companies must report major segment expenses, meaning costs broken out for each of its business groups or divisions, according to a Monday release. The new guidance will be effective for annual financial reporting periods beginning after Dec. 15 of this year.
Under the new standards, public entities on an annual and interim basis will have to disclose additional significant expenses by segment beyond those already required, but just what that data will be is dependent on the company. The new disclosures will reflect the significant segment financial information that is regularly shared with a firm’s so-called “chief operating decision maker,” according to the release.
The move “significantly expands the segment disclosures from the original requirements established in 1997 while retaining the management approach to that information,” FASB Chair Richard Jones said in a video posted on the U.S. standard setter’s website.
The new segment rules are among a number of projects that the board is tackling this year which are poised to increase disclosure requirements for companies. In September the board effectively finalized standards that establish fair value as the method for accounting for certain crypto assets, keeping the guidelines narrowly focused by excluding nonfungible tokens (NFTs).
Prior to the latest segment standard update, public companies still were required to report certain gauges of segment performance, such as measure of segment profit, interest revenue, interest expense, depreciation and amortization as well as income tax expense.
But under the new standards companies will now have to disclose the segment expenses that are regularly shared internally with the CDOM, which is typically the CEO or a committee that includes them. Some accounting professionals expect that could mean investors will get more information broken out for cost of goods sold, selling, general, and administrative expenses or even such items as rent or labor.
There are about a half dozen key new requirements that have been added to the segment Topic 280 of the codification that guides generally accepted accounting principles. Those new rules include a requirement that public companies include “an amount for other segment items” for non-significant expenses and a description of what the other items are comprised of; a requirement that the reportable segment’s profit or loss and asset information be provided in “interim periods” rather than just annually; and a requirement that companies disclose the title and position of the CODM and “an explanation of how the CODM uses the reported measure(s),” according to the release.
The effective date for the new requirements is next month, which is more swift than the timeline for other new standards. For example, in September the board voted to issue the final standard for the disclosure of crypto assets with an effective date for fiscal years beginning after Dec. 15, 2024.