Investors place a high value on segment reporting because it allows them to understand the performance of different parts of a company’s operations. ASC 280 gives public companies a framework for providing segment disclosures and prescribes a “management approach” for identifying operating segments. Such approach focuses on how management has organized the entity to make operating decisions and assess performance. Its objective is to allow financial statement users to (1) see the entity’s performance through the eyes of management, (2) assess the entity’s prospects for future cash flows, and (3) make more informed judgments about the entity’s performance.

Adoption of Recent Updates to Segment Reporting

In November 2023, the FASB issued ASU 2023-07 to improve the information that a public entity discloses about its reportable segments and to address investor requests for additional disclosures about segment expenses. The ASU does not change existing guidance on the identification of operating segments, the manner of determining reportable segments, or the aggregation criteria. Rather, it adds disclosure requirements that also apply to entities with a single reportable segment, not just those with multiple reportable segments.

ASU 2023-07 introduces the significant expense principle, which requires an entity to provide additional disclosure of segment expenses. It also enhances interim disclosure requirements, clarifies the circumstances in which an entity can disclose multiple segment measures of profit or loss, and adds certain other new disclosure requirements.

The ASU became effective for all public entities for fiscal years beginning after December 15, 2023 (e.g., for calendar-year-end public entities, annual periods beginning on January 1, 2024 [December 31, 2024, for Form 10-K]), and interim periods within fiscal years beginning after December 15, 2024 (e.g., for calendar-year-end public entities, interim periods beginning on January 1, 2025 [the first quarter of 2025 for Form 10-Q]). The enhanced segment disclosure requirements apply retrospectively to all prior periods presented in the financial statements.

Calendar-year-end public companies were required to adopt the ASU’s changes in their 2024 Form 10-K filings. We examined the ASU’s adoption by Fortune 500 companies that filed their financial statements as of March 3, 2025, and whose fiscal years began on or after December 15, 2023 (approximately 70 percent of the Fortune 500). As noted above, segment disclosures, including those related to significant segment expenses, reflect how management views the business. In the ASU’s Background Information and Basis for Conclusions, the FASB indicates that “the significant expense principle should be based on the substance of the segment information that is regularly provided to the CODM rather than on its form.” Companies have had to apply judgment and consider both quantitative and qualitative factors when assessing their significant segment expenses. Such disclosures are therefore based on a company’s unique facts and circumstances and vary widely among registrants, even those in similar industries. Not surprisingly, companies’ disclosures have differed in both the number of significant segment expenses identified and the nature of those expenses.

The ASU requires an entity to disclose the title and position of the chief operating decision maker (CODM) along with an explanation of how the CODM uses the reported segment measure(s). About 86 percent of Fortune 500 filers indicated that the CODM is the chief executive officer. Companies most frequently cited “budget to actual variance analyses” when describing how the CODM uses the measure of performance to allocate resources and make decisions. Disclosures also noted the CODM’s use of the measure of performance in forecasting, developing the annual plan, and determining management’s compensation and incentives.

ASU 2023-07 also permits, but does not require, companies to disclose more than one measure of segment profit or loss used by the CODM provided that at least one of the reported measures includes the segment profit or loss measure that is most consistent with GAAP measurement principles. About 7 percent of Fortune 500 filers disclosed a voluntary additional measure of segment performance that was also consistent with GAAP (e.g., segment operating income and segment net income), with 1 percent disclosing a voluntary additional measure of performance that was a non-GAAP measure (e.g., segment-adjusted operating income and segment earnings before interest, taxes, depreciation, and amortization [EBITDA]).

The SEC staff has indicated that it would not object if a registrant voluntarily included, in the segment footnote, additional non-GAAP performance measures that it discloses in accordance with the ASU. However, any additional non-GAAP measures of segment profit or loss must meet the presentation and disclosure requirements of Regulation G and Regulation S-K, Item 10(e) (collectively, the “SEC’s non-GAAP rules”). Such non-GAAP disclosures may be provided outside the financial statements (e.g., in MD&A). The SEC has observed that adjustments that render a non-GAAP measure of segment profitability misleading are inconsistent with Regulation G. A registrant would use the same SEC guidance it applies to other non-GAAP measures that are used outside the financial statements (e.g., MD&A, press releases), including the Compliance and Disclosure Interpretations (C&DIs) on misleading measures, to evaluate voluntary additional non-GAAP measures of segment profit or loss (see Chapter 4 of Deloitte’s Roadmap Non-GAAP Financial Measures and Metrics for more information).

The SEC staff has also emphasized its expectation that an entity with one reportable segment whose CODM evaluates the business and makes capital allocation decisions on a consolidated basis would conclude that consolidated net income is the measure most consistent with GAAP and is therefore the required measure (of segment profit or loss).

Registrants are encouraged to consult with their auditors and SEC counsel if they (1) intend to disclose voluntary additional measures that are not consistent with GAAP or (2) have a single reportable segment and management concludes that it does not manage the entity on the basis of a consolidated GAAP measure of segment profit or loss (e.g., consolidated net income).

Segment reporting remains a significant source of SEC comments, and the SEC staff has indicated that it is focusing on registrants’ compliance with the ASU’s disclosure requirements. In addition, recent SEC staff comments have specifically addressed (1) the identification and aggregation of operating segments, (2) changes in reportable segments, (3) reporting considerations for entities with a single reportable segment, (4) entity-wide disclosures, and (5) the use of multiple measures of segment performance.

Overview of Segment Reporting Framework and Objectives

ASC 280-10-10-1 states that the objective of segment reporting “is to provide information about the different types of business activities in which a public entity engages and the different economic environments in which it operates to help users of financial statements do all of the following:

• Better understand the public entity’s performance
• Better assess its prospects for future net cash flows
• Make more informed judgments about the public entity as a whole.”

In applying the segment reporting guidance in ASC 280, an entity should perform each of the following key steps:

SEC reporting considerations

An SEC registrant’s reportable segment determination provides the basis for its required disclosures in the business and MD&A sections of its filing. For example, SEC Regulation S-K, Item 101(c), states that the registrant should provide a narrative description of the business, “focusing upon the registrant’s dominant segment or each reportable segment about which financial information is presented in the financial statements.” In addition, SEC Regulation S-K, Item 303, provides guidance on MD&A of financial condition and results of operations. It states, in part:

Where in the registrant’s judgment a discussion of segment information and/or of other subdivisions (e.g., geographic areas, product lines) of the registrant’s business would be necessary to an understanding of such business, the discussion must focus on each relevant reportable segment and/or other subdivision of the business and on the registrant as a whole.

To comply with this guidance, a registrant will often provide disclosures that are consistent with those of its reportable segments. A registrant should also be mindful of the SEC’s guidance on the reporting implications of retrospective changes in reportable segments and changes in significant segment expenses.