For public companies, the landscape of financial reporting is about to change in a meaningful way—and not just for the usual reasons. The Financial Accounting Standards Board (FASB) has rolled out its most significant update to segment reporting in a quarter century, introducing Accounting Standards Update (ASU) 2023-07, which takes effect for fiscal years beginning after December 15, 2023. This means most companies will need to comply starting with their 2024 annual reports. The core aim? To give investors a clearer, more granular view of where your company’s money is really going, segment by segment. If you’re in charge of financial reporting, now’s the time to get up to speed—not just on the rules, but on how to make them work for your business without creating unnecessary headaches.

Why This Matters Now #

Let’s be honest: segment reporting has always been a bit of a black box. Investors and analysts have long complained that they can’t see enough detail about the expenses that drive each business unit’s performance. The FASB listened. After extensive outreach, including direct feedback from the investment community, the board decided it was time for a change. The result is a set of requirements that will push public companies—including those with just one reportable segment—to open up their books in ways they haven’t before[2][5].

The stakes are high. The Securities and Exchange Commission (SEC) has already signaled that it will be paying close attention to compliance with these new rules during its 2024 financial statement reviews[3]. And with six out of seven FASB members voting in favor (one academic member dissented), it’s clear the board sees this as a priority for investor protection and market transparency[2].

What’s Actually Changing? #

At its heart, ASU 2023-07 is about expense transparency. Gone are the days when you could lump all segment expenses into broad categories or hide them in footnotes. Now, you’ll need to disclose—on both an annual and interim basis—significant segment expenses (SSEs) that are regularly provided to your chief operating decision maker (CODM), as well as a new category called “other segment items”[1][4][6].

Significant Segment Expenses (SSEs): These are expenses that are both regularly provided to the CODM and included in each reported measure of segment profit or loss. If an expense category is significant and regularly reviewed by your CODM, it must be broken out separately in your disclosures. This could include things like cost of sales, selling expenses, or research and development—whatever is material and regularly tracked at the segment level[4][6].

Other Segment Items: This is essentially a reconciliation category. It captures all the expenses (and occasionally gains or losses) that aren’t separately disclosed as SSEs but are still part of your segment profit or loss. You’ll need to disclose the aggregate amount of these items and provide a qualitative description of what’s included[1][6].

Multiple Measures of Profit or Loss: If your CODM uses more than one measure to assess segment performance, you’re now allowed to disclose them all—as long as at least one is consistent with GAAP principles. The SEC has even said it won’t object to additional non-GAAP measures in the footnotes, provided you follow all the usual rules for non-GAAP disclosures[3].

CODM Disclosure: You’ll also need to disclose the title and position of your CODM (or the name of the group/committee), plus an explanation of how the disclosed measures of segment profit or loss are used to make decisions[4][5].

Single Segment Entities: Previously, companies with only one reportable segment had lighter disclosure requirements. No more. Now, you’ll need to provide the same level of detail as your multi-segment peers[5].

A Step-by-Step Guide to Implementation #

Implementing these new requirements isn’t just a matter of tweaking your footnotes. It’s a process that touches people, processes, and systems across your organization. Here’s how to approach it, step by step, with practical examples and real-world advice.

Step 1: Understand Your Current Segment Reporting #

Start by taking a hard look at your existing segment disclosures. What expenses do you currently break out by segment? What information does your CODM actually review on a regular basis? This is where many companies trip up: if your internal reporting doesn’t align with your external disclosures, you’ll have a problem.

Example: Suppose your CODM reviews gross profit by segment, plus a few key expense lines like sales commissions and R&D. Under the new rules, each of these would likely need to be disclosed separately if they’re significant and regularly provided.

Step 2: Identify Your CODM and Their Information Needs #

Who is your CODM? It might be the CEO, the CFO, or a management committee. Whatever the case, document their title and position, and map out exactly what segment-level information they use to allocate resources and assess performance. This isn’t just a compliance exercise—it’s a chance to clarify decision-making roles within your company.

Actionable Advice: Interview your CODM and their team. Ask what metrics they rely on, how often they review them, and whether they ever ask for additional detail. This will help you identify which expense categories are “regularly provided” and therefore subject to disclosure.

Step 3: Determine Significant Segment Expenses #

Not every expense needs to be broken out—just the ones that are both significant and regularly provided to the CODM. “Significant” is a matter of judgment, but think materiality: if an expense category is big enough to influence decisions, it probably qualifies. “Regularly provided” means the CODM sees it often enough to rely on it—monthly, quarterly, or at least annually.

Practical Tip: Create a matrix of all segment expenses, marking which are regularly provided to the CODM and which are material. This will help you identify your SSEs and avoid over- or under-disclosure.

Step 4: Define and Disclose Other Segment Items #

Once you’ve identified your SSEs, everything else that’s included in segment profit or loss—but not separately disclosed—goes into “other segment items.” You’ll need to disclose the aggregate amount and describe, in plain English, what kinds of expenses (or gains/losses) are included.

Example: If your segment profit includes $10 million in SSEs and $2 million in other expenses (like minor administrative costs or one-time charges), you’d disclose the $2 million as “other segment items” and briefly explain what’s in that bucket.

Step 5: Decide on Additional Profit or Loss Measures #

If your CODM looks at more than one measure of segment profitability—say, both GAAP operating income and a non-GAAP measure like EBITDA—you can disclose both, as long as at least one is GAAP-compliant. The SEC has clarified that you can even include non-GAAP measures in footnotes, as long as you follow all relevant SEC guidance[3].

Insider Tip: Be transparent about why you use multiple measures and how they differ from GAAP. This builds trust with investors and reduces the risk of SEC scrutiny.

Step 6: Update Your Disclosures and Internal Controls #

Now it’s time to rewrite your segment footnote. Be clear, concise, and user-friendly. Use tables to present SSEs and other segment items, and include a narrative explaining how your CODM uses the disclosed measures. Don’t forget to disclose the CODM’s title and position.

Example Disclosure Table:

Internal Controls: Update your controls over segment reporting. Make sure your accounting systems can capture and report the required detail, and that your disclosure committee reviews the new disclosures before they go public.

Step 7: Train Your Team and Communicate with Stakeholders #

These changes affect more than just the accounting department. Make sure your finance team, segment managers, and even your investor relations staff understand what’s changing and why. Consider holding training sessions and updating your disclosure controls and procedures manuals.

Personal Touch: I’ve seen companies struggle with segment reporting because the left hand didn’t know what the right hand was doing. Clear communication and cross-functional teamwork are key to a smooth transition.

Step 8: Prepare for SEC Scrutiny #

The SEC has said it will focus on segment reporting in its 2024 reviews[3]. Be ready to explain your judgments—especially around which expenses are “significant” and “regularly provided.” Document your process and be prepared to defend your conclusions.

Real-World Insight: In my experience, the SEC is more likely to question companies that appear to be hiding expenses or using inconsistent definitions. Transparency and consistency are your best defenses.

Common Pitfalls and How to Avoid Them #

Even with the best intentions, companies can stumble when implementing new accounting standards. Here are some common pitfalls—and how to sidestep them.

Pitfall 1: Misidentifying the CODM or Their Information Needs
If you’re not clear on who the CODM is or what information they use, your disclosures will be off base. Solution: Document the CODM’s identity and the exact information they review, and revisit this annually.

Pitfall 2: Over- or Under-Disclosing SSEs
Disclosing too many expenses can clutter your financials; disclosing too few can draw SEC scrutiny. Solution: Use a consistent, documented process to identify SSEs, and be prepared to explain your rationale.

Pitfall 3: Ignoring Interim Reporting
The new rules apply to both annual and interim periods. Don’t wait until year-end to update your processes. Solution: Integrate the new disclosures into your quarterly close process from day one.

Pitfall 4: Poor Communication with Investors
Investors may have questions about your new disclosures. Solution: Proactively explain the changes in your earnings calls and investor materials, and be ready to answer detailed questions.

The Bigger Picture: Why This Is Good for Business #

At first glance, these new requirements might seem like just another compliance burden. But there’s a silver lining. More transparent segment reporting can actually make your company more attractive to investors, who are hungry for detail about where profits (and losses) really come from. It can also sharpen internal management by forcing a clearer view of segment performance.

Statistic: A 2023 FASB survey found that over 80% of investors wanted more detail on segment expenses—a clear signal that the market is demanding this change[2]. Companies that embrace it early may find themselves rewarded with greater investor confidence and, potentially, a higher valuation.

Final Thoughts and Next Steps #

Implementing FASB’s 2024 segment expense disclosures is a journey, not a one-time project. It requires careful planning, cross-functional collaboration, and a commitment to transparency. Start by understanding the new rules, then work through each step methodically—identifying your CODM, mapping their information needs, defining your SSEs and other segment items, updating your disclosures, and communicating the changes both internally and externally.

Most importantly, don’t treat this as a check-the-box exercise. Use it as an opportunity to improve your internal reporting, engage more deeply with investors, and build a culture of transparency. In the long run, that’s good for everyone—your company, your shareholders, and the market as a whole.