FASB Plans to Keep Robust Segment Reporting Rules

On March 10, 2021, the Financial Accounting Standards Board (FASB) met to discuss segment expense disclosures. The FASB announced plans to add more disclosures, rather than to eliminate any disclosures.

Specifically, each significant expense category would need to be reconciled to the corresponding entity-wide total amount. In addition to the reconciliation issue, the FASB agreed on the following three issues:

1. How the significant expense categories under the principle would interact with the existing requirements to disclose certain expenses by reportable segment. The FASB plans to retain the current list under Accounting Standards Codification Topic 280, Segment Reporting, of expenses companies would need to disclose, such as depreciation, depletion and amortization expense; income tax expense; and significant noncash items other than depreciation expense.

2. Whether to require disclosure of an “all other” expense amount and a description of its composition. Public companies would give a narrative description starting from segment revenue down to segment profit so that investors could see the components that were otherwise included in segment profit.

3. Whether to require entities to provide a narrative description of the basis of allocating expenses to the segments. The FASB doesn’t plan to require a specific allocation method on a year-to-year basis, but a company would have to disclose if it changed the basis for which it allocated its expenses.

The FASB will hold more meetings in the coming months to discuss segment reporting further. Contact your CPA for the latest developments.