The FASB on Oct. 6, 2022, issued a proposal that would require public companies to disclose any significant expenses that impact their business units and to provide the title and position of who chiefly makes their financial decisions.
Investors want to know “who or what group” primarily reviews company expenses to “allocate resources and assess performance” as that would provide context for the disclosure information, a text of the proposal says.
The board said it is seeking public comment on the provisions, Proposed Accounting Standards Update (ASU) No. 2022-100Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures, which represent the most significant change to segment reporting in 25 years.
The proposal would improve the information that investors currently get so that they can track expenses both annually and quarterly in the business segments of a company, units especially that can drain profits and thereby influence stock prices the most.
The changes were developed after extensive outreach, the board said.
“The proposed ASU would represent the FASB’s most significant change to segment reporting since 1997,” FASB Chair Richard Jones said in a statement. “On the basis of our extensive stakeholder outreach, the proposed ASU would provide investors and other allocators of capital with valuable insights into significant segment expenses, expand segment disclosures reported in interim periods, and require disclosures for single-segment entities.”
However, two FASB members — academic Christine Botosan and analyst Gary Buesser — wrote dissents, stressing the changes do not go far enough for investors. The proposed “modest improvements fall far short of financial statement users’ requests for (a) a finer partitioning of entities’ operating activities into reportable segments and (b) more financial line items about each segment,” the board members said jointly, among other reasons.
Companies have until Dec. 20 to submit comments.
Segment reporting provides details about revenue generating business units within a public company. Under U.S. GAAP, companies have to report a segment if it has at least 10%of revenues, 10% of the profit or loss, or 10% of the combined assets of the company.
If finalized, the proposal would specifically:
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