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ASC 280 Segment Reporting and ASU 2023-07: Who Reports and What Changed

ASC 280 segment reporting explained: which entities are in scope, the CODM, operating and reportable segments, the 10% and 75% tests, and what ASU 2023-07 added for significant segment expenses and single-segment entities.

CORAA TeamUpdated November 5, 20268 min read

ASC 280, Segment Reporting, requires certain entities to disclose financial information about their operating segments the way management sees the business. It is a public-entity standard, so most CPA firm clients do not apply it. It still matters for audits of entities that are or may become public entities, including SEC registrants, non-issuer broker-dealers registered with the SEC, and companies preparing for an offering, and for lenders and investors who ask for segment data voluntarily. ASU 2023-07, effective in 2024, added expense disclosures and clarified the rule for entities with one segment. This page covers scope, the model, and the changes.

Which entities are in scope?

ASC 280 applies to public entities as defined in the ASC Master Glossary, with certain exceptions. A public entity is a business entity or not-for-profit entity that meets any of the glossary conditions, among them having issued debt or equity securities, or being a conduit bond obligor, with securities traded in a public market, and being required to file financial statements with the SEC or a regulatory agency in preparation for sale of securities. The definition includes non-issuer broker-dealers registered with the SEC. Neither not-for-profit entities nor nonpublic entities are required to provide ASC 280 disclosures. ASC 280-10-15-2 encourages entities that are not public entities to provide them, and they are not precluded from doing so.

ASU 2023-07 did not change the scope of entities that apply ASC 280. See the GAAP hierarchy page for the PBE and private company definitions, which differ from "public entity" in this topic.

How does the segment model work?

The standard follows management's own structure. The steps, which an entity completes in order, are:

  1. Identify the chief operating decision maker (CODM). The term describes a function, not a title. The CODM allocates resources to the segments and assesses their performance. It can be an individual or a group or committee.
  2. Determine the operating segments. An operating segment is a component that earns revenue and incurs expenses, whose results are regularly reviewed by the CODM, and for which discrete financial information is available.
  3. Aggregate operating segments, if allowed. Segments can be combined when they have similar economic characteristics and are similar in the nature of products, processes, customers and distribution, and regulatory environment.
  4. Apply the quantitative thresholds. An operating segment is reportable if it meets one of the 10 percent tests. After those tests, the sum of external revenue of all reportable segments must be at least 75 percent of consolidated revenue. If it is not, additional segments are identified as reportable even though they do not meet a 10 percent test. Operating segments that are not reportable are combined in an "all other" category.
  5. Provide the disclosures. These include general information (how segments were determined, products and services), entity-wide information (revenue by product, by geography, and from major customers at 10 percent or more of revenue), segment profit or loss and assets, and reconciliations to consolidated amounts.

What did ASU 2023-07 change?

FASB issued ASU 2023-07 in November 2023. The changes are:

  • Significant segment expenses. An entity discloses, for each reportable segment, significant expense categories and amounts that are regularly provided to the CODM and included within the reported measure of segment profit or loss. Significance takes quantitative and qualitative factors into account, and the existing expense line items in ASC 280-10-50-22 continue to apply.
  • Other segment items. The entity describes the composition of, and discloses an amount for, the other items included in the measure of segment profit or loss that are not separately disclosed as segment revenue or significant segment expenses.
  • CODM title and position. The entity discloses the title and position of the individual, or the name of the group or committee, identified as the CODM. Where it is a committee, RSM's view is that the title of the committee and the positions of its members should be disclosed.
  • More than one profit measure. An entity may report multiple measures of segment profit or loss, provided each is used by the CODM in assessing performance and allocating resources, in addition to the measure most consistent with GAAP measurement principles.
  • Interim disclosures. The annual segment profit or loss and asset disclosures, including the new ones, are required in interim periods.
  • Single reportable segment. An entity with one reportable segment must provide all of the ASC 280 disclosures, including those in ASU 2023-07.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Entities apply it retrospectively to each comparative period presented unless that is impracticable.

Worked illustration

Illustrative numbers, revenue test only. A public entity has seven operating segments with external revenue of $100 million in total: A $40 million, B $12 million, G $12 million, and four others (C, D, E, F) at $9 million each.

  • 10 percent of combined revenue is $10 million. Segments A, B and G meet the revenue test: $40 + $12 + $12 = $64 million.
  • $64 million / $100 million = 64 percent, below the 75 percent threshold.
  • The entity adds reportable segments until the total reaches 75 percent. One more segment gives $73 million (73 percent), still short. A second gives $82 million (82 percent), which passes.
  • Segments not reported separately go into "all other", and the entity must disclose significant expenses for each of the five reportable segments.

In practice the profit and asset tests are also run, and some segments may already pass them.

What does this mean for a CPA firm?

For most private clients, nothing is required. Where ASC 280 applies, or a lender or buyer asks for segment information:

  • obtain the CODM identification and the package the CODM actually reviews, and compare it to the segment note
  • check that significant expense categories in the note appear in the CODM package, and that the note's segment totals reconcile to consolidated figures
  • evaluate whether an entity with a single reportable segment has disclosed the full set, including the measure of profit or loss and significant expenses
  • for a client preparing for a registration statement, plan for retrospective recasting of prior periods
  • consider voluntary segment disclosure as a negotiating point with lenders, and document that it is voluntary

Segment structure also bears on how reporting units are identified for goodwill testing. See ASC 360 and ASC 350 impairment.

Common problems

Practice observations, not requirements:

  • Segments in the note that do not match the management reports the CODM actually receives.
  • A committee or board named as CODM with no explanation of who sits on it.
  • Single-segment entities that give only revenue by geography and omit the measure of profit or loss and significant expenses.
  • The "other segment items" line used as a catch-all with no description of its composition.
  • Prior-period comparatives not recast.

FAQ

Does ASC 280 apply to private companies?

No. Nonpublic entities are not required to provide ASC 280 disclosures, though ASC 280-10-15-2 encourages it.

What is a CODM?

A function, not a job title. It allocates resources to and assesses performance of the operating segments. It can be a CEO, a COO, or a committee.

Is a company with one segment exempt?

No. ASU 2023-07 clarified that a public entity with a single reportable segment must provide all the ASC 280 disclosures, including the new ones.

When did ASU 2023-07 take effect?

For fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024.

Sources

Part of CORAA University · US GAAP for private companies: related guides, calculators and templates.

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AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error

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