FASB seeks preparer input on segment reporting ideas

To help figure out what to do to improve segment reporting, the Financial Accounting Standards Board is looking for public companies to participate in a study.

FASB is looking for companies to help identify what kinds of improvements are warranted to the guidance in GAAP on aggregating business segments and reporting their results in financial statements. The board says it is the first phase in reaching out to preparers to get their input on how the rules could be improved.

The board is specifically looking for companies that must comply with Accounting Standards Codification Topic 280 on segment reporting. Companies will be asked to provide information on how they use the criteria outlined in ASC 280 and how they would be affected by two potential approaches the staff has identified as possible alternatives to the existing rules.

FASB added a project to its technical agenda in September 2017 after staff research and outreach with users, preparers, and accounting firms identified potential ideas for improving both the aggregation criteria and the disclosure requirements under segment reporting.

The two approaches the board wants to explore with preparers include either re-ordering the process for determining reportable segments and moving the quantitative thresholds earlier into the process, or removing the aggregation criteria entirely, which would make each operating segment reportable until a practical limit is reached.

When it last discussed the alternatives in June, FASB was torn on whether the project should focus on both alternatives or on simply removing the aggregation criteria from current GAAP. That prompted the board to seek feedback from preparers.

Board members are interested in learning how reportable segments would change under the different approaches, any unintended consequences that might result from either approach, and any operability concerns that might arise. Earlier board discussions raised questions about how changes in this particular area of GAAP might affect goodwill impairment testing, for example, or even audit costs if more segments would become reportable.

In asking companies to participate, FASB says feedback from the process will help the board understand the costs and benefits of the different possible approaches. The board says study participants will not be identified publicly, their feedback kept confidential.

Segment reporting is a common topic of comment by the Securities and Exchange Commission in its routine review and comment process. According to a Deloitte analysis, segment reporting ranked fourth among topics most often meriting SEC comment letters in 2017 and 2016, behind uses of non-GAAP measures, management discussion and analysis, and fair value. Comment letters most often focus on the identification and aggregation of operating segments, changes in reportable segments, and entity-wide disclosures, Deloitte says.