Segment reporting trends

The release of ASU 2023-07 and continued scrutiny in SEC comment letters related to segment disclosures mark a new chapter for public companies. For CFOs, controllers, and audit committees, this is not just a compliance exercise. It is a strategic imperative.

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Why segment reporting now?

The SEC's latest comment letter trends place segment reporting among the top three areas of focus, alongside MD&A and non-GAAP measures. This focus reflects both the increasing complexity of today’s operating models and a desire to ensure that external disclosures mirror internal decision-making.  

Add to this the FASB’s ASU 2023-07, which enhances segment reporting by requiring public entities to disclose significant segment expenses that are regularly provided to the CODM and included in reported profit or loss, both annually and quarterly. It also mandates disclosure of "other segment items," expands interim disclosure requirements, and applies to single-segment entities—all aimed at improving transparency and consistency for investors and analysts. Transparency is the theme, and the CODM is now front and center.

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Where companies are getting tripped up

Drawing from recent SEC comments, several areas consistently raise red flags:

• Lack of alignment between internal management reporting and external segment disclosures.

• Insufficient explanation of how CODMs use performance metrics, especially when multiple measures are disclosed.

• Use of non-GAAP segment performance metrics without proper reconciliation or rationale—subject to Regulation G and Item 10(e) of Regulation S-K.  

• Generic MD&A narratives that lack the granularity needed to explain segment-level results.  

In one case, the SEC challenged a registrant’s “segment profit” metric for including corporate overhead not allocated to segments, concluding it was a non-GAAP measure that lacked appropriate labeling and reconciliation. That is not a technicality—it is a transparency issue.

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A roadmap for CFOs and audit committees

We recommend the following steps that can help companies get ahead of regulatory scrutiny:

1. Revisit CODM reporting - Document and validate what your CODM actually reviews. Is it consolidated net income, EBITDA by business unit, or something else? Your disclosures must reflect that reality.

2. Identify all performance measures used internally - If you present multiple performance metrics (e.g., EBITDA, margin, contribution profit), be ready to explain why—and reconcile them clearly. Do not assume they are GAAP-compatible by default.

3. Avoid cross-referencing to MD&A in financial statements - The SEC has made it clear that required segment performance disclosures must live within the financial statements, not be buried in MD&A or referenced externally.

4. Treat non-GAAP segment measures with caution - Even if a metric is used by your CODM, if it does not align with GAAP, it is a non-GAAP measure—and must meet all associated disclosure rules. This includes:

• An explanation of why the measure is useful to investors.  

• Reconciliation to the nearest GAAP measure.  

• Avoiding misleading presentation or naming conventions.  

5. Disaggregate expenses at the segment level - New disclosures require more than revenue and profit by segment. You will need to break out significant segment expenses—a task that could challenge existing systems and processes.

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Turning compliance into strategic value

Ultimately, segment reporting is not just about SEC compliance. Done well, it helps stakeholders—from investors to internal leaders—understand what is really driving value in your business.

That is where experienced finance leaders can shine. By aligning disclosures with real-world operations and applying sound judgment, experienced finance leaders can not only meet the letter of the law—they help elevate transparency, trust, and performance.

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How Socorro Partners can help

If you have not already done so, now is the time to revisit your segment disclosures. The reporting landscape demands not just compliance—but clarity. At Socorro Partners, we are built to enable exactly that.

Through our Accounting Advisory solutions, we help organizations free their finance leadership from the drag of day-to-day firefighting. Our seasoned CPAs and consultants deliver hands-on support across a full range of financial and operational priorities—from technical accounting compliance and ICFR readiness to SEC reporting, risk management, strategic planning, operations optimization, and M&A.   We tailor our approach to meet the evolving needs of modern finance teams to achieve long-term impact.

By enhancing visibility, streamlining processes, and embedding best practices, we empower finance and accounting teams to lead at their highest and best use—as trusted advisors, change agents, and architects of sustainable growth.

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