Published Date:
March 28, 2025
Updated Date:
April 9, 2025
ASU 2023-07: Overview and Impact on Segment Reporting
Background
On November 27, 2023, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) that increased the segment-related disclosures public entities must provide in their financial statements. The update, known as ASU 2023-07 applies to all public entities and increases the information available to investors to help them “develop more decision-useful financial analyses.”1
ASU 2023-07 is intended to provide additional value to investors by expanding disclosures using the management approach already applied within Topic 280, Segment Reporting. The management approach means that companies determine their externally reported segment information based on management’s internal reporting structures, which helps investors better view the company from management’s perspective.2 Investors have communicated with the FASB that “segment information, presented under the management approach, is critically important to understanding a public company’s business activities.”3
Another key aspect of ASU 2023-07 is its clarification that the segment disclosure requirements in Topic 280 apply to all public entities, even those with only one reportable segment. This ensures greater consistency in how public companies report segment information, regardless of the number of segments they disclose.
Public companies must adopt the new segment reporting requirements in 2024 for their annual reports and in 2025 for their interim reports. That means corporations with a calendar year-end are implementing or have implemented the annual disclosure requirements for their 2024 10-Ks and are preparing to implement interim disclosures in their 2025 10-Qs. Public entities must apply the updates retrospectively; so, for each previous period shown in the financial statements, the entity must present prior period segment data in its disclosures that conform to the updated standard.4
Overview and Implementation
Topic 280, Segment Reporting before ASU 2023-07 already called for annual disclosures of general segment information such as how public companies identified their reportable segments, whether they aggregated any operating segments, and how their segments generated revenues (what types of products and services they sold). Public companies also already had to disclose items such as segment profit or loss and certain segment revenue, expense, or asset-related items. Topic 280 has various other disclosure requirements including reconciling segment profit or loss to consolidated income before taxes or reconciling segment revenue and asset amounts to consolidated revenue and asset amounts.5
While the above summary is not an exhaustive breakdown of Topic 280 prior to updates from ASU 2023-07, it provides some context to the financial reporting changes outlined in this article. The following section highlights some of the main provisions of ASU 2023-07. Under these provisions public entities must report the following information in addition to Topic 280’s current requirements:
New Annual Disclosures
- The title and position of the Chief Operating Decision Maker (CODM), and how the CODM uses the reported profit or loss measures to allocate resources and assess segment performance. The CODM is the individual or committee in a public company that is primarily responsible for assessing performance of and allocating resources to that company’s segments.
New Annual and Quarterly Disclosures
- Significant expenses provided regularly to the CODM and included in a segment’s reported measure of profit or loss. This is known as the “significant expense principle” and it uses the management approach by requiring disclosure of expenses provided internally to the CODM rather than a set list of expenses.6 If the CODM reviews expenses as presented on the income statement, the company simply discloses this and directs the user to the face of the financial statements for all significant expenses.
- An “other segment items” amount, which reconciles a segment’s revenues minus significant segment expenses and that segment’s measure of profit or loss.
- The measure of profit or loss disclosed to the CODM that is the most consistent with GAAP. A company “is not precluded” from reporting multiple profit or loss measures that are provided to the CODM7. However, if a public entity chooses to disclose another profit or loss measure that is a non-GAAP measure, it may introduce additional complexity as it must then comply with certain requirements laid out by the SEC related to non-GAAP measures.8
- Report all Topic 280 disclosures even if the firm has only one reportable
segment, including the following profit or loss items:- Revenues from external customers
- Interest revenue
- Interest expense
- Depreciation and amortization expense
- Certain unusual items
- Equity in the net income of investees accounted for by the equity method
- Income tax expense or benefit
- Significant noncash items other than depreciation and amortization
expense9 - All newly required items from ASU 2023-07, such as significant expenses
and other segment items
An important aspect of the above requirements, especially those for firms with only one reportable segment, is that the FASB does not require duplicative disclosures. For example, while firms must disclose depreciation and amortization by segment, if a public company with one reportable segment already discloses this line item on the face of its financial statements, it does not need to show this information again in the segment footnote. The FASB encourages public entities to use judgement when considering whether they should repeat information required by segment reporting guidance.10
Financial Statement Impact – Annual Reporting
This article takes a broad perspective of the overall impact of ASU 2023-07 on the financial statements of public companies by looking at examples of several major US corporations that were some of the first to release annual financial statements following adoption of ASU 2023-07. This includes firms such as Meta, T-Mobile, Ford, Netflix, and others. These companies’ reports demonstrate both areas of segment reporting where significant changes occurred and where little to no change occurred from before the ASU took effect to now.
Differences in Practice Between the Old and New Standards
One of the most significant changes emerging in new segment disclosures is how corporations with a single operating segment report their segment results. A dramatic example is that of T-Mobile (TMUS), with part of its 202311 and 202412 segment disclosures shown in a comparison in Figure 1. T-Mobile did not have a footnote dedicated to segment disclosures in 2023. After implementing ASU 2023-07 for the 2024 fiscal year, T-Mobile included a dedicated footnote disclosure with segment information including a CODM disclosure and a breakdown of revenues, significant expenses, other segment items, and segment net income (the measure of profit or loss for the segment).
Other companies that also updated their segment disclosures due to the ASU’s new requirements for entities with a single reportable segment include Paypal, Snap, Pinterest, and Netflix.
A second noteworthy change stems from the significant expense principle included in the ASU, which dictates that public entities report significant segment expense figures regularly provided to the CODM and included in that segment’s profit or loss measure. Meta Platforms, Inc., the parent company of Facebook, provides a specific example of how this requirement changes reporting. Figure 2 below shows a side-by-side comparison of part of Meta’s 202313 and 202414 segment disclosures. As seen below, Meta disaggregated its revenue by segment in 2023 but did not report any significant expenses. In 2024, Meta reported compensation expense as a significant expense along with “other costs and expenses” to reconcile revenue and compensation expense to each segment’s measure of profit or loss.
Additional companies that adjusted their reporting under the significant expense principle include Hilton Worldwide, Snap, Pinterest, and Ford.
A third major adjustment occurring in public entity financial reporting is that of other segment items, which companies must include if needed to reconcile segment revenue, significant expenses, and segment profit or loss. For example, prior to the ASU, Ford already disclosed segment revenue and segment profit or loss figures in substantial detail. Following the ASU, Ford disclosed an additional line item of other segment items, including a footnote that provided details on the expenses included in this line item that reconciled each segment’s revenue to each segment’s measure of profit or loss. See Figure 3 below for a side-by-side comparison of Ford’s 202315 and 202416 annual financial statements as well as the other segment items footnote.
Other firms that modified their segment disclosures to add other segment items include Pinterest, Snap, and T-Mobile.
Parity in Practice Between the Old and New Standards
The most significant point of parity between how public entities reported pre- and post-adoption of ASU 2023-07 is the reporting of the CODM’s title and position. Several companies disclosed this information before the ASU specifically required it. As an example, see the side-by-side comparison of Netflix’s 2023 10-K17 segments disclosure and its 2024 10-K18 segments disclosure in Figure 4 below.
Several other companies also disclosed the CODM’s title before the ASU including Meta, Pinterest, Levi Strauss, Snap, and Paypal.
Conclusion
The implementation of ASU 2023-07 significantly increases the amount of segment information public entities must disclose in their financial statements. As demonstrated in the examples highlighted in this article, the key changes include expanded reporting for companies with a single reportable segment, disclosure of “significant expenses” regularly reviewed by the CODM, and the addition of "other segment items" to reconcile revenues, expenses, and profit or loss measures.
Other aspects of the ASU did not significantly expand disclosure in practice. For example, many companies were already disclosing the CODM’s title or position before the ASU took effect, minimizing the impact of this specific requirement.
Overall, ASU 2023-07 enhances financial transparency by providing investors with additional visibility into company performance through the lens of segment reporting. While it does not alter the face of the financial statements, the update seeks to improve the usefulness of segment disclosures, offering investors a more detailed perspective on a company's financial health and management decision-making.
References
1. FASB’s ASU 2023-07
2. PwC Viewpoint Chapter 25, Segment Reporting
3. FASB’s ASU 2023-07 Summary
5. EY Financial Reporting Developments, Segment Reporting
6. EY Technical Line, A closer look at the FASB’s new segment disclosure requirements
7. FASB’s ASU 2023-07
8. Deloitte Heads Up – Volume 31, Issue 15, Mind the Non-GAAP
9. Accounting Standards Codification 280-10-50-22
10. FASB’s ASU 2023-07
11. T-Mobile 2023 10-K
12. T-Mobile 2024 10-K
13. Meta 2023 10-K
14. Meta 2024 10-K
15. Ford Motor Company 2023 10-K
16. Ford Motor Company 2024 10-K
17. Netflix 2023 10-K
18. Netflix 2024 10-K
Footnotes
March 28, 2025