As we navigate the complexities of financial reporting in 2025, designing a robust chart of accounts is more crucial than ever. This is particularly true for companies adhering to both FASB and IFRS standards, especially when it comes to segment expense disclosures. In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, which significantly expanded the requirements for reportable segment disclosures under U.S. GAAP. Similarly, IFRS 8 outlines detailed guidelines for segment reporting that companies must follow. In this article, we’ll explore how to create a comprehensive chart of accounts that aligns with these new standards, ensuring your financial reporting is both compliant and insightful.
Let’s start with the basics. A chart of accounts is essentially a list of all the accounts used by a business to record financial transactions. It’s organized in a way that makes it easy to categorize and analyze financial data. For segment expense disclosures, this means setting up accounts that can track and report on significant expenses for each segment. Under ASU 2023-07, companies must disclose segment expenses based on what is regularly provided to the chief operating decision maker (CODM). This requires a deep understanding of how management views the business and makes decisions.
To design a robust chart of accounts, you’ll need to consider several key elements:
Segment Identification: Start by identifying the reportable segments within your organization. This could be based on geographical regions, product lines, or business units. Each segment should have its own set of accounts to track revenues, expenses, assets, and liabilities.
Expense Categorization: Once you’ve identified your segments, categorize the significant expenses for each. These could include salaries, rent, marketing expenses, or any other costs that are regularly reviewed by the CODM. The FASB emphasizes that these expenses should be disclosed if they are included in the measure of segment profit or loss or otherwise regularly provided to the CODM.
Account Structure: Ensure your chart of accounts has a clear structure that reflects these expense categories. For example, you might have separate accounts for salaries, benefits, and training within the human resources department. This granular approach will help you track and disclose segment expenses more effectively.
A practical example of how this might work involves a company with two main segments: consumer products and industrial equipment. Each segment has its own set of accounts for tracking expenses like marketing, research and development, and manufacturing costs. By having a detailed chart of accounts, the company can easily provide the required disclosures for each segment, ensuring compliance with FASB standards.
In terms of implementation, it’s essential to involve both your accounting team and management in the process. This ensures that the chart of accounts aligns with how the business operates and how decisions are made. Here are some actionable steps to consider:
Conduct a Business Analysis: Start by understanding how your business operates. Identify the key segments, the types of expenses they incur, and how these expenses are managed.
Involve Stakeholders: Engage with your management team to understand what information they need to make decisions. This will help ensure that your chart of accounts captures the right data.
Use Technology: Leverage accounting software that allows for easy customization and tracking of segment expenses. This can help streamline the reporting process and reduce errors.
Regularly Review and Update: As your business evolves, your chart of accounts should too. Regularly review and update your accounts to ensure they remain relevant and compliant with changing standards.
For companies following IFRS, similar principles apply, but there are some key differences. IFRS 8 requires entities to disclose material items of income and expense for each reportable segment, as well as any other information that is regularly reviewed by the CODM. This means your chart of accounts should be structured to capture these material items and ensure they are not obscured by immaterial information.
One of the challenges in implementing these new standards is applying judgment in determining what expenses are significant for each segment. This requires a deep understanding of your business operations and how management uses financial information to make decisions. For instance, a company might consider an expense significant if it represents a substantial portion of the segment’s total costs or if it is critical to the segment’s profitability.
In recent years, there has been a significant increase in the scrutiny of financial reporting by regulatory bodies like the SEC. As of 2025, approximately 70% of Fortune 500 companies have adopted the new FASB standards, reflecting a shift towards more detailed segment expense disclosures. This trend highlights the importance of having a robust chart of accounts that can support these disclosures.
To illustrate this further, consider a multinational company with operations in several countries. Each country represents a separate segment, and the company must disclose significant expenses like taxes, labor costs, and marketing expenses for each segment. By having a well-designed chart of accounts, the company can ensure that these disclosures are accurate and compliant with both FASB and IFRS standards.
In conclusion, designing and implementing a robust chart of accounts for segment expense disclosures requires careful planning and alignment with both FASB and IFRS standards. By understanding your business segments, categorizing expenses, and structuring your accounts to reflect these categories, you can ensure compliance and provide valuable insights to stakeholders. As financial reporting continues to evolve, having a flexible and well-organized chart of accounts will be crucial for navigating these changes effectively.
When implementing these changes, remember that it’s not just about compliance; it’s about providing meaningful information that helps stakeholders understand your business better. By taking a thoughtful and structured approach to your chart of accounts, you can enhance transparency and decision-making across your organization.