Preparing financial statements that comply with ASU 2023-07’s segment disclosure requirements in 2025 means embracing a new level of detail and transparency, especially around segment expenses. This update by the Financial Accounting Standards Board (FASB) pushes public entities to provide investors with clearer insights into how different parts of the business contribute to overall performance, going beyond just revenue and profit figures.
To start, it’s important to understand the core change: under ASU 2023-07, companies must disclose significant segment expenses that are regularly provided to the chief operating decision maker (CODM). This is a shift from prior rules that focused mostly on revenue and profit or loss measures per segment. What qualifies as a significant expense? Typically, these are costs that materially affect segment profitability and are regularly reviewed by the CODM when making resource allocation decisions. For example, if your company’s CODM receives gross margin and revenue data for each segment, you’d likely need to break out cost of sales as a significant expense since it’s easily derived from that information[1][2][7].
Next, companies must extend these disclosures not only to annual financial statements but also to interim periods. This means your quarterly reports in 2025 will need to include segment expense details alongside revenue and profit or loss data. It’s a good idea to update your internal reporting processes now to capture these expense details consistently throughout the year, avoiding last-minute scrambles during quarter-end close[1][4].
If your company has just a single reportable segment, you’re not off the hook. ASU 2023-07 clarifies that even single-segment entities must apply the full set of ASC 280 segment disclosures, including the new expense disclosures. That often means a more granular look at segment profit or loss components and reconciliations. For instance, a company previously reporting entity-level results might now have to provide additional breakdowns and explanations of significant expenses that the CODM uses to evaluate performance[2][4][9].
One practical step is identifying who qualifies as the CODM and documenting their role clearly in the disclosures. The ASU requires naming the title and position of the CODM, plus a description of how the CODM uses the reported segment measures. This adds transparency and helps investors understand the decision-making framework behind the numbers. So, when preparing your disclosures, include a clear statement like: “The Chief Operating Decision Maker, the CFO, uses segment profit and significant expense information to allocate resources and assess segment performance”[4][7].
When it comes to the actual preparation of financial statements, here are some actionable tips to keep your process smooth and compliant:
Review internal reporting packages: Make sure the data provided to the CODM includes all relevant significant expenses and is reconciled with your general ledger. Sometimes, expenses might be aggregated in a way that makes it hard to isolate segment-level details, so adjust reporting lines accordingly.
Define ‘significant’ clearly: Materiality is key. Analyze which expenses consistently impact segment profit or loss materially. For example, in a manufacturing segment, raw material costs may be significant; in a service segment, personnel costs might dominate.
Use multiple profit or loss measures if helpful: ASU 2023-07 permits disclosing more than one segment profit or loss measure if the CODM uses them. This flexibility can improve transparency but requires clear explanations to avoid investor confusion[3][7].
Update disclosure checklists: Incorporate all new requirements, such as interim period disclosures, CODM identification, and explanations of how segment measures are used. This helps ensure no key detail is missed.
Coordinate with auditors early: The expanded disclosures represent a significant change, so early discussions with auditors about methodology and presentation can prevent surprises during audit reviews.
To bring this to life, imagine a publicly traded tech company with three reportable segments: hardware, software, and services. Before ASU 2023-07, they disclosed revenue and operating profit per segment annually. Now, they must also disclose significant expenses, like R&D costs for software and cost of goods sold for hardware, quarterly if those expenses are regularly reviewed by the CODM. They’d also need to disclose who the CODM is—say, the CEO—and explain how the CEO uses these profit and expense measures to decide where to invest or cut costs.
It’s worth noting that these changes reflect a broader trend in financial reporting: investors want more detailed, actionable information that reflects economic realities better. Research shows that clear segment disclosures can improve investor confidence and potentially reduce the cost of capital, as analysts gain a clearer picture of risk and performance drivers[4]. In other words, the effort you put into compliance can pay off by making your company’s story more compelling and trustworthy.
Lastly, don’t overlook training your finance and accounting teams. ASU 2023-07 requires a mindset shift—from reporting broad aggregates to focusing on segment-level granularity. Running workshops or creating quick-reference guides about how to identify significant expenses and prepare disclosures can build confidence and accuracy across your reporting cycle.
In summary, preparing financial statements compliant with ASU 2023-07 in 2025 is about enhancing transparency around segment expenses, broadening disclosure frequency to interim periods, and clarifying the CODM’s role and use of segment information. By updating your internal reporting systems, defining significant expenses thoughtfully, and aligning your disclosures with the new rules, you’ll not only meet regulatory requirements but also provide investors with deeper insights into your business segments’ health and prospects. This is a practical, manageable step toward stronger financial communication in today’s demanding market environment.