Definition
ASC 280 applies to public entities, not to private companies unless they choose to provide the information. An operating segment is a component of the entity that earns revenues and incurs expenses, has discrete financial information, and whose results are regularly reviewed by the chief operating decision maker (CODM). A segment is reportable if its revenue, its profit or loss (measured against the greater of combined profit or combined loss), or its assets are 10% or more of the combined total, and reportable segments must cover at least 75% of consolidated revenue. ASU 2023-07 requires disclosure of significant segment expenses, the title and position of the CODM, and how the CODM uses the reported measure of profit or loss. It is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.
Why it matters in an audit or review
Auditors compare segment information with internal reports, board packages, and the information that management uses, because segment identification follows management's organization.
Example
(Illustrative) A company has four units with revenue of $60, $30, $6, and $4 million, totaling $100 million. On the revenue test alone, the first two are above 10% and cover 90% of revenue, which meets the 75% test, so the small units may be combined as all other.
Common mistakes
- Aggregating segments without meeting criteria.
- Applying ASC 280 to a private company that is not required to.
Sources
- FASB ASC 280-10-50-12 and 50-14 (quantitative thresholds and 75% test)
- FASB ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures: https://storage.fasb.org/ASU%202023-07.pdf
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error