Tag: FASB Accounting Standards Update
FASB issues final ASU requiring enhanced disclosure of segment expenses
The FASB has announced a final Accounting Standards Update designed to improve disclosures about public companies’ reportable segments, particularly disclosures about significant segment expenses—information that the FASB says investors frequently request. The ASU indicates that investors and others view segment information as “critically important in understanding a public entity’s different business activities. That information enables investors to better understand an entity’s overall performance and assists in assessing potential future cash flows.” According to FASB Chair Richard R. Jones, the “new segment reporting guidance is based on the FASB’s extensive outreach with stakeholders, including investors, who indicated that enhanced disclosures about a public company’s segment expenses would enable them to develop more decision-useful financial analyses….It will improve financial reporting by providing additional information about a public company’s significant segment expenses and more timely and detailed segment information reporting throughout the fiscal period.” Previously, at the proposal stage, Jones had referred to the ASU as the “FASB’s most significant change to segment reporting since 1997.” While the extent of new information will vary among entities, the FASB “expects that nearly all public entities will disclose new segment information under the amendments.” It’s worth pointing out here that the financial reporting changes could well lead to changes in MD&A disclosure. The ASU will apply to all public entities required to report segment information (under Topic 280). Compliance with the new guidance will be required starting in annual periods beginning after December 15, 2023.
FASB wants more disclosure about expenses
FASB is moving ahead with new requirements for more information about public company expenses, approaching the issue from two perspectives: disaggregation of income statement expenses and segment reporting. More specifically, this week FASB published a proposed Accounting Standards Update intended to provide investors with more decision-useful information about expenses on the income statement. According to the press release announcing the proposed ASU, investors have said that more detailed information about a company’s expenses “is critically important to understanding a company’s performance, assessing its prospects for future cash flows, and comparing its performance over time and with that of other companies.” In addition, last week, FASB made a tentative decision to go forward with new requirements for enhanced disclosure about segment expenses and other segment items, and directed the staff to draft a final ASU for vote by written ballot. FASB had previously explained that investors find segment information to be critically important to understanding a company’s different business activities, as well as its overall performance and potential future cash flows. Although financial statements do provide information about segment revenue and a measure of profit or loss, not much information is disclosed about segment expenses.
FASB issues proposed ASU on segment reporting
Last month, the FASB issued a proposed ASU on segment reporting. In its announcement, the FASB explained that investors find segment information to be critically important to understanding a company’s different business activities, as well as its overall performance and potential future cash flows. Although financial statements do provide information about segment revenue and a measure of profit or loss, not much information is disclosed about segment expenses. According to FASB Chair Richard Jones, the “proposed ASU would represent the FASB’s most significant change to segment reporting since 1997….On the basis of our extensive stakeholder outreach, the proposed ASU would provide investors and other allocators of capital with valuable insights into significant segment expenses, expand segment disclosures reported in interim periods, and require disclosures for single-segment entities.”
LIBOR phase-out: FASB to the rescue (sort of)
You may recall that, for a while now, the SEC has been actively warning about risks associated with the LIBOR phase-out, which is expected to occur in 2021. LIBOR, the London Interbank Offered Rate, is a widely used reference rate calculated based on estimates submitted by banks of their own borrowing costs. In 2012, the revelation of LIBOR rigging scandals made clear that the benchmark was susceptible to manipulation, and British regulators decided to phase it out. SEC Chair Jay Clayton has advised that, according to the Fed, “in the cash and derivatives markets, there are approximately $200 trillion in notional transactions referencing U.S. Dollar LIBOR and… more than $35 trillion will not mature by the end of 2021.” In July, the SEC staff published a Statement that “encourages market participants to proactively manage their transition away from LIBOR.” (See this PubCo post.) However, the substantial uncertainties and challenges associated with implementing the transition have led to delays and triggered a high level of anxiety among companies faced with addressing the issue. (See this PubCo post.) As reported in Bloomberg BNA, to ease the strain of the transition, FASB has jumped in with some proposed temporary financial reporting relief.
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