Dive Brief:

• The Financial Accounting Standards Board (FASB) Thursday issued a proposed update to accounting rules that would require public companies to include more frequent and comprehensive financial data on their business units or “segments” in financial reports.
• Under the proposal, publicly-traded companies would have to break out data on their business units’ performances quarterly and annually rather than just annually. Companies would also need to disclose their business units’ individual expense information on top of the information on so-called segment revenue and measures of profit and loss currently required.
• The proposal would represent the standards setter’s “most significant change to segment reporting since 1997,” FASB Chair Richard R. Jones said in a press release. “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.”

Dive Insight:

The move toward the changes come in response to requests from investors who want to see improvements to the existing segment disclosure requirements that were issued in 2012. About one-third of investors have indicated that they were “somewhat dissatisfied” with the existing accounting standards, according to the FASB formal proposal. 

Investors have said that the additional information would give investors a better understanding of the companies’ different business activities and enable them to better assess potential future cash flows, the release states. The segments of companies are typically broken down by geography or services. 

Another notable element of the proposal is that it would subject companies that currently report their financial results as a single entity to some of the proposed segment accounting rules. The change could affect about one-third of all public companies, according to the FASB report. 

One person in the accounting sector said the proposal was likely to draw pushback from companies concerned about the cost and extent of the proposed requirements. “This is a pretty big enhancement of what they’ll have to disclose,” the person said in an interview. 

FASB has lately been taking on a number of ambitious new projects even as its slow decision-making process has come under fire.

Last month a Securities and Exchange Commission committee report criticized FASB’s rule-making process for falling short of providing the fresh guidance needed by investors to analyze company values in today’s fast-changing markets. Over the past 20 years, the report asserted that FASB had only completed three major projects: revenue recognition, leases and credit loss accounting.

FASB will be looking for feedback on proposed accounting standards update on segment reporting, known as Topic 280, from all stakeholders including audit preparers, accountants and companies, through Dec. 20.