Your roadmap to accounting guidance in ASC 280

ASC 280-10-10-1 states that the objective of segment reporting “is to provide information about the different types of business activities in which a public entity engages and the different economic environments in which it operates to help users of financial statements do all of the following:

    a.     Better understand the public entity’s performance

    b.     Better assess its prospects for future net cash flows

    c.     Make more informed judgments about the public entity as a whole.”

In applying the segment reporting guidance in ASC 280, an entity should perform each of the following key steps:

Recent updates

In November 2023, the FASB issued ASU 2023-07, which introduces improvements to the information that a public entity discloses about its reportable segments and addresses investor requests for more information about reportable segment expenses. The ASU does not change the current guidance related to the identification of operating segments, the determination of reportable segments, or the aggregation criteria. Rather, the new guidance introduces additional disclosure requirements and expands those requirements to entities with a single reportable segment, not just entities with multiple reportable segments.

ASU 2023-07 enhances interim disclosure requirements, clarifies the circumstances in which an entity can disclose multiple segment measures of profit or loss, and introduces the significant expense principle, which requires additional disclosure of segment expenses. In addition, the ASU provides new segment disclosure requirements for entities with a single reportable segment and contains other disclosure requirements.

The ASU is effective for all public entities for fiscal years beginning after December 15, 2023 (e.g., for calendar-year-end public entities, annual periods beginning on January 1, 2024—i.e., December 31, 2024, Form 10-K), and interim periods within fiscal years beginning after December 15, 2024 (e.g., for calendar-year-end public entities, interim periods beginning on January 1, 2025—i.e., Form 10-Q for the first quarter of 2025). Early adoption is permitted. The enhanced segment disclosure requirements apply retrospectively to all prior periods presented in the financial statements.

SEC reporting considerations

An SEC registrant’s reportable segment determination provides the basis for its required disclosures in the business and MD&A sections of its filing. For example, SEC Regulation S-K, Item 101(c), states that the registrant should provide a narrative description of the business, “focusing upon the registrant’s dominant segment or each reportable segment about which financial information is presented in the financial statements.” In addition, SEC Regulation S-K, Item 303, provides guidance on MD&A of financial condition and results of operations. It states, in part:

Where in the registrant’s judgment a discussion of segment information and/or of other subdivisions (e.g., geographic areas, product lines) of the registrant’s business would be necessary to an understanding of such business, the discussion must focus on each relevant reportable segment and/or other subdivision of the business and on the registrant as a whole.

To comply with this guidance, a registrant will often provide disclosures that are consistent with those of its reportable segments. A registrant should also be mindful of the SEC’s guidance on the reporting implications of retrospective changes in reportable segments and changes in significant segment expenses.

Registrants should also consider the SEC’s guidance on non-GAAP measures that applies to the financial information presented in their filings and, if applicable, the manner in which they complied with SEC Regulation G. It may be difficult to evaluate whether a non-GAAP measure is misleading in the context of Regulation G; SEC Regulation S-K, Item 10; or the non-GAAP Compliance and Disclosure Interpretations (C&DIs). Additional measures included in the financial statement footnotes will be subject to management’s assessment of internal control over financial reporting and external audit procedures. Registrants are encouraged to consult with their auditors and SEC counsel if they (1) intend to disclose additional measures that are not consistent with GAAP or (2) have a single reportable segment and management concludes that it does not manage the entity on the basis of a consolidated GAAP measure of segment profit or loss (e.g., consolidated net income), or both.

Continue your segment reporting learning

For a comprehensive discussion of the requirements in ASC 280 related to identifying and disclosing operating segments, see Deloitte’s Roadmap Segment Reporting.