If your company is publicly traded, getting ready for the 2026 FASB segment expense disclosure requirements isn’t just a good idea—it’s a necessity. These new rules will shake up how public companies disclose segment expenses, demanding more detailed, transparent, and consistent reporting. The changes aim to give investors and stakeholders a clearer picture of how different parts of a business perform financially, especially when it comes to segment-specific expenses. Let’s walk through what you need to know and do to stay ahead of this.

The Financial Accounting Standards Board (FASB) finalized an update requiring public companies to disclose significant segment expenses regularly provided to the chief operating decision maker (CODM), both in annual and interim reports. This update, effective for fiscal years starting after December 15, 2026, marks the most substantial change in segment reporting since 1997[1][3][5][10]. It’s designed to address investor demands for better insights into segment-level profitability and cost structures.

To prepare effectively, you’ll want to approach this in several practical steps: understanding the new requirements deeply, evaluating your current segment reporting processes, enhancing your data collection and systems, training your teams, and adjusting your financial communications accordingly.

First, grasp what the significant segment expenses disclosure means. Unlike before, when segment reporting mainly covered revenues, profits or losses, and assets, the update mandates you break down your expenses by segment with more granularity. This includes major costs like purchases of inventory, employee compensation, depreciation, and amortization of intangible assets[1][5]. For example, if your manufacturing segment has significant depreciation expense, you’ll need to disclose that clearly within the segment note.

One useful way to think about this is that you must disclose expenses that are both material and regularly reported to the CODM. The standard also allows disclosing multiple profit or loss measures if those are used internally, provided one measure aligns with US GAAP principles[2]. This flexibility means if your CODM uses adjusted operating profit alongside GAAP operating profit to evaluate segments, you can disclose both—helping investors understand your internal decision-making process.

Next, assess your current data systems and internal reporting. Many companies discover that their existing financial systems don’t neatly categorize expenses at the segment level in a way that matches the new rules. It’s crucial to work with your accounting and IT teams to ensure that expense data can be traced and aggregated accurately by segment. For example, you might need to tag certain expenses like employee compensation by business unit or segment, or adjust how cost of goods sold is allocated.

Here’s where it gets practical: start by mapping out all expense categories in your current segment reports. Identify which expenses the CODM reviews regularly and which might require additional tracking or breakdown. For instance, if the CODM currently reviews segment profitability without a clear breakdown of selling expenses or research and development costs, you’ll need to change that.

Implementing or upgrading financial reporting tools that support automated segment expense tracking can save time and reduce errors. Many ERP and financial consolidation systems offer modules or features to help with segment-level reporting. The goal is to avoid manual adjustments and instead rely on robust systems that can generate the required disclosures efficiently.

Training your finance team and CODM on the new requirements and how to interpret the segmented expense data is equally important. This ensures the data provided is both accurate and meaningful internally, which will reflect well in external disclosures. When the CODM understands how these expense disclosures affect external reporting, they’re more likely to ensure high-quality data is captured in regular management reports.

Also, review your MD&A (Management’s Discussion and Analysis) sections and investor communications. Since segment expense disclosures are now more detailed, investors will expect explanations of how these expenses impact segment performance and future outlooks. For example, if a segment’s employee compensation expense spikes due to strategic hiring, that context should be communicated clearly.

From a compliance perspective, it’s wise to engage your external auditors early in the process. They can provide feedback on your approach and highlight areas where your segment expense disclosures may need further refinement. Given the SEC’s focus on segment reporting in their 2024 review cycle, companies that proactively address these changes are less likely to face scrutiny or delays in filings[2][4].

Another piece of advice is to keep an eye on industry-specific nuances. Some sectors have complex cost structures—think pharmaceuticals or manufacturing—where segment expenses can be highly variable and intertwined. Tailor your disclosure approach to reflect these complexities accurately. For instance, in a tech company, R&D costs might be a significant segment expense, while in retail, inventory purchases and logistics might dominate.

To bring this all together, here’s a checklist to guide your preparations:

• Understand the new FASB ASU 2023-07 and ASU 2024-03 requirements, focusing on the segment expense disclosure and disaggregation of income statement expenses[1][6].
• Identify the CODM and document how they use segment profit or loss measures—this transparency supports compliance and investor understanding[4].
• Review and update internal reporting processes to capture significant segment expenses regularly provided to the CODM[3].
• Enhance data collection and systems to accurately allocate expenses by segment, minimizing manual adjustments[2][6].
• Train finance and management teams on the new requirements and internal reporting expectations.
• Update MD&A and investor communications to explain segment expense impacts clearly.
• Engage auditors early to review your approach and disclosures.
• Customize disclosures to your industry’s cost structure and segment complexities.
• Plan for interim period disclosures, as the rules apply not just annually but also quarterly starting after December 15, 2027[4][10].

Finally, remember that these changes offer an opportunity, not just a challenge. By embracing greater transparency and improving your segment expense disclosures, your company can build stronger investor trust and provide more insightful financial information. This can lead to better capital allocation decisions by the market and, ultimately, greater shareholder value.

Preparing well ahead of the effective date lets you avoid last-minute headaches and positions your company as a leader in financial reporting quality. Start conversations now, allocate resources for system upgrades, and treat this as a chance to refine how you measure and communicate your business performance at the segment level. The future of segment reporting is more detailed, and with the right approach, your company can navigate it smoothly.