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The Impact of Segment Reporting: What Auditors Need to Know Now

Attention Auditors:

Since FASB has announced ASU 2023-07 and the required updates to Segment Reporting, companies have included unadopted accounting standard updates in their recent accounting policies as required by SAB 74 (codified as SAB Topic 11.M/ASC 250-10-S99-5). SAB 74 requires companies to disclose potential effects upon the adoption of recently issued accounting standards. ASU 2023-07 is entirely disclosure-related. Therefore, there are no quantitative financial impacts on the financial statements. Further, ASU 2023-07 does not change how companies identify and determine reportable segments. Therefore, the SAB 74 disclosures have only provided readers of the financials with a brief description of the new standard, the method the company plans to adopt, and whether the company has early adopted. 

During interim reviews, has there been robust communication with those charged with governance?  Other than the finance team, have there been crucial discussions with the Chief Operating Decision Maker (CODM), other members of management, as well as the audit committee to explain the impacts this ASU will have on the company’s 2024 annual financial statements[1]? This includes the additional documentation and support the management team will prepare to support the new segment disclosure requirements, including but not limited to the internal control aspects of compiling the financial information. Companies should begin looking at their CODM reporting packages in the interim to assess the potential impact the ASU will have on the CODM package.

How Centri Can Help

At Centri, our team of technical accounting experts has the knowledge and expertise to help your clients navigate the new requirements, including:

• Serving as the central point of contact for the working group, ensuring that responsibilities are clearly defined and critical deadlines are met.
• Reviewing your current system and its capabilities to identify the significant segment expenses to be reported within the appropriate timeframe.
• Developing/enhancing internal controls over the identification and reporting of the significant segment expenses to be reported in the footnote, as well as developing control activities over how the CODM is using these reported expenses to measure segments’ profit/loss. 
• Enhancing existing Segment documentation in a memorandum to align with the new ASU, or if one has not been previously prepared, preparing a memorandum of how the Company complies with ASC 280 including the adoption of this Update.
• Assisting with the preparation of the Segment Footnote and its related required disclosures in the financial statements.

For more information, refer to this article, which includes a brief summary and considerations on the new accounting standard.  

[1] For those companies with fiscal years beginning after December 15, 2023.

Blake Roberts

Partner | Technical Accounting Practice Leader | CPA

Blake is a Partner at Centri Business Consulting and the leader of the firm’s Technical Accounting Practice. He has more than 18 years of public accounting experience. View Blake Roberts's Full Bio

Michael Kirchner

Managing Director | CPA, MBA

Mike is a Managing Director at Centri Business Consulting. He has more than 16 years of accounting, advisory, and audit experience. View Michael Kirchner's Full Bio