The Financial Accounting Standards Board has agreed to take a fresh look at its rules around business segment reporting after an internal review suggested there may be a reason to consider changes to existing standards. 

A post-implementation review of Financial Accounting Statement No. 131: Disclosures About Segments of an Enterprise and Related Information revealed some stakeholders believe some of the operational aspects of the standard could be improved with additional guidance, said FASB Chairman Leslie Seidman in a statement. “FASB will consult with stakeholders to understand the significance of the issues raised and their priority in relation to other potential agenda items,” she said. FASB also will consult with the Securities and Exchange Commission and with the International Accounting Standards Board to determine whether new guidance is warranted.

Adopted in 1997 and folded into the present Accounting Standards Codification under Topic 280, FAS 131 establishes requirements for the way public companies are expected to report financial information about their business segments. It also establishes disclosure requirements about products, services, geographic areas, and major customers for those business segments.

The Financial Accounting Foundation's review said FAS 131 is working effectively compared with the prior standards it replaced, but some preparers and practitioners told the review team they would find some additional guidance on the identification of operating segments helpful. The review also found some users of financial statements would like more and comparable information to be presented by segment. The SEC has cited business segment issues as a frequent area of problems and comments in financial statements.

In her six-page response to the FAF, Seidman notes technology has changed the way preparers can access detailed information about operating segments, and the standard gives them flexibility to report on the business activities of segments in a variety of different ways. “FASB appreciates that determining the discrete financial information that the chief operating decision maker regularly reviews to make decisions about resources to be allocated to the segment and to assess its performance is an area of judgment,” Seidman wrote.

Also subjective, she points out, is the decision about when it is appropriate to aggregate information for segments that are substantially similar. The FAF report raises concerns about where entities may aggregate information out of competitive concerns or to mask poor performing business segments. Seidman promises the review will take a look at whether new guidance is warranted.

Seidman also reminds FAF that it will conduct the review with its own rules of procedure in mind. Those rules spell out the criteria for when changes to accounting standards are warranted to minimize unnecessarily frequent changes to accounting requirements that only burden the financial reporting system. Those criteria include taking into account whether the board was missing important information when it adopted the exiting standard, whether the environment or the transactions have changed significantly since the existing standard was adopted, or whether the standard produced significant unintended costs or consequences.

FASB will updated FAF on the progress of its review as information becomes available, Seidman said.