Mastering segment expense disclosures under ASU 2023-07 is essential for public companies aiming for smooth compliance in their 2025 reporting. This update, effective for fiscal years starting after December 15, 2023, with interim periods effective after December 15, 2024, requires a deeper dive into segment expenses beyond what many entities are used to. The goal? To give investors clearer insights into how each segment drives overall company performance, especially regarding expenses that impact profit and loss[1][2].
At the heart of ASU 2023-07 is the significant expense principle, which mandates that companies disclose expenses by segment that meet three criteria: they are regularly reported to the chief operating decision maker (CODM), included in the segment’s profit or loss measure, and deemed significant by management[3]. This is a shift from the traditional focus on revenue and profit or loss to a more granular look at expenses, helping investors assess cash flow potential and operational efficiency on a segment-by-segment basis.
To get a handle on these requirements, start by identifying which segment expenses meet the significance threshold. This isn’t just about listing expenses but involves a careful assessment of what the CODM reviews regularly. For example, if your CODM focuses heavily on raw materials and labor costs in the manufacturing segment, those costs would likely qualify as significant expenses. Conversely, smaller or less impactful expenses, even if recurring, may not need detailed disclosure unless management considers them material[3].
A practical approach is to work closely with the CODM and finance teams to map out the expense categories they use in decision-making. This collaboration ensures the segment disclosures align with internal performance evaluation, avoiding unnecessary or irrelevant data that could confuse investors. The ASU also requires disclosing “other segment items”, a catch-all category covering expenses not classified as significant, gains or losses, or expenses not regularly reported to the CODM but included in the segment profit or loss[5]. For instance, depreciation and amortization are usually disclosed separately under existing ASC 280 rules but may also appear in this category if not classified as significant expenses.
One critical new element is the requirement for entities with a single reportable segment to apply ASC 280 disclosures in full, including the expanded expense details. This levels the playing field, ensuring all public entities provide comparable information regardless of segment complexity[2][6]. So, if your company previously reported minimal segment disclosures due to having only one segment, be prepared to ramp up your reporting processes.
Don’t overlook the interim reporting implications. ASU 2023-07 extends many annual disclosure requirements to interim periods, meaning you need consistent, timely tracking of segment expenses throughout the year—not just at year-end. Implementing robust systems to capture and categorize segment expenses monthly or quarterly will help avoid last-minute scrambling and potential errors[1][4].
Another new requirement is disclosing the title and position of the CODM, along with an explanation of how the CODM uses each reported measure of segment profit or loss to assess performance and allocate resources[2][3]. This personalizes the disclosures, giving investors insight into who is making key operational decisions and how different profit metrics influence those decisions. This could be as straightforward as stating, “The Chief Financial Officer (CFO) is the CODM and uses adjusted EBITDA and operating income to evaluate segment profitability and guide resource allocation.”
To keep your disclosures clear and useful, consider presenting segment expense data in a structured format, such as tables that show:
- Revenue by segment
- Significant expenses by category within each segment
- Other segment items and their composition
- Segment profit or loss measures used by the CODM
For example, a technology company might show segment revenues alongside significant expenses like R&D costs, sales and marketing expenses, and cost of goods sold for each segment. They would then disclose other segment items, such as share-based compensation or restructuring costs, separately to maintain transparency.
From a practical standpoint, here are some actionable tips to master these disclosures for 2025 reporting:
Engage early with your finance, accounting, and operational teams to identify the CODM and understand their decision-making process and the expense categories they monitor regularly.
Develop or update your internal reporting systems to capture segment expense data accurately and timely, ensuring consistency across interim and annual periods.
Document your methodology for determining which expenses are significant, how you allocate shared costs, and how you define “other segment items.” Clear documentation aids auditors and supports transparency.
Educate your reporting teams and executives about the new disclosure requirements, especially the significance of segment expense granularity and the expanded interim reporting scope.
Review SEC staff guidance and industry peer disclosures to benchmark your disclosures and ensure they meet stakeholder expectations.
The push behind ASU 2023-07 reflects a broader trend toward greater financial transparency and decision-useful information. According to Deloitte, investors have long sought more detailed expense information at the segment level because it helps them understand the cost drivers and profitability nuances that simple revenue and profit figures can obscure[1]. Grant Thornton and EY emphasize that these enhanced disclosures can improve investor confidence by providing a more complete picture of how management runs the business segment by segment[4][5].
While the changes add complexity, they also offer an opportunity to showcase operational strengths and strategic resource allocation. Thoughtful, well-structured disclosures can differentiate your company by illustrating disciplined expense management and clear communication.
In summary, mastering segment expense disclosures under ASU 2023-07 requires a mix of strategic collaboration, robust data management, and transparent communication. By focusing on what the CODM regularly uses and providing clear explanations and breakdowns, companies can meet the new standards confidently and deliver meaningful insights to their investors starting with 2025 reporting periods.