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SEC now: Segments 2025 comment letter trends · PwC's accounting podcast

• 0:00
  SPEAKER_00: Thought leadership from PWC's national office.
• 0:07
  SPEAKER_02: Hello, and welcome to PWC's Accounting Podcast.
• 0:11
  SPEAKER_02: I'm Heather Horn.
• 0:13
  SPEAKER_02: Today we're continuing our SEC focused series with a look at segment reporting, another top comment letter area in 2025.
• 0:22
  SPEAKER_02: Segment reporting continues to draw significant investor attention because it offers a view of the business through the eyes of management.
• 0:29
  SPEAKER_02: Given that importance, it's historically been a frequent area of SEC comment.
• 0:34
  SPEAKER_02: And that's especially true this year with the adoption of the new segment reporting standard.
• 0:43
  SPEAKER_02: Our guests today are Jay Celeber and Kevin Vaughn, both partners in PWC's national office who spent a lot of time advising in this space and who will both be familiar voices to our regular listeners.
• 0:55
  SPEAKER_02: And for those following along with the series, our guest host once again today is Kyle Moffitt, PWC's National Office professional practice leader.
• 1:04
  SPEAKER_02: Let's get today's episode started.
• 1:07
  SPEAKER_01: Jay, Kevin, welcome back to our podcast.
• 1:10
  SPEAKER_01: We're excited to have you join us today to talk about some of the recent comma letter trends and developments we're seeing related to segments.
• 1:16
  SPEAKER_01: And I know you guys did a, you know, was it last year, a couple years ago, um, a session on was it ghosts of segments past?
• 1:24
  SPEAKER_03: Past, present, and future.
• 1:25
  SPEAKER_03: Present of future.
• 1:26
  SPEAKER_03: We're now in the future.
• 1:27
  SPEAKER_01: And we're now in the future, right?
• 1:29
  SPEAKER_01: So we're in the future.
• 1:30
  SPEAKER_01: Um so um I know this obviously a very hot topic last year as companies were adopting uh the new guidance, the amendments to the standard.
• 1:38
  SPEAKER_01: Um so I'm sure everybody's you know really anxious to hear kind of what the staff is focusing on, some of the comment letters, um, the themes that we're we're starting to see.
• 1:46
  SPEAKER_01: So, Kevin, just want to have you start with an overview of some of the high-level observations that we've been seeing in this space.
• 1:53
  SPEAKER_03: Yeah, no, it's great, great to be here and and love talking about segments.
• 1:56
  SPEAKER_03: I always have to put in my plug.
• 1:57
  SPEAKER_03: Uh I love talking with Jay about segments.
• 2:00
  SPEAKER_03: Uh, so so it's great, great to be here again.
• 2:03
  SPEAKER_03: It it is still uh top five, as as you mentioned.
• 2:07
  SPEAKER_03: Uh I think it's in our most recent numbers as of 930 for the 12 months ended 930.
• 2:11
  SPEAKER_03: Uh it was number three.
• 2:13
  SPEAKER_03: Um, so it remains pretty active in the in the comment space.
• 2:17
  SPEAKER_03: Uh we did see a little bit of an uptick uh year over year in terms of in terms of the numbers uh and numbers there.
• 2:23
  SPEAKER_03: So and and some of that may be around the new standard.
• 2:26
  SPEAKER_03: So we'll talk about some of the comments there.
• 2:28
  SPEAKER_03: Um, you know, not to we'll get into the details, but a lot of those comments are more, I'll call them compliance-based.
• 2:34
  SPEAKER_03: So we'll talk about what we've seen so far versus what we may see down the road.
• 2:39
  SPEAKER_03: And then um, you know, I think it's for that reason, I think it's gonna continue to be, right?
• 2:44
  SPEAKER_03: It's an important disclosure.
• 2:45
  SPEAKER_03: Uh the staff has always been very interested in it because it's a it's a different way to communicate with investors.
• 2:50
  SPEAKER_03: It's a way to show, show comp show investors the way that management uh looks at the business.
• 2:56
  SPEAKER_03: And so uh I think it's it's gonna remain on the list and and may even move up.
• 3:01
  SPEAKER_03: We'll see what happens.
• 3:03
  SPEAKER_03: Yeah.
• 3:03
  SPEAKER_03: Maybe that's my my prediction.
• 3:05
  SPEAKER_03: Maybe next year's segments will be number one.
• 3:07
  SPEAKER_01: I think they might get there.
• 3:08
  SPEAKER_03: Um maybe we bring the foam finger with us.
• 3:11
  SPEAKER_04: Yes.
• 3:11
  SPEAKER_04: That's right.
• 3:12
  SPEAKER_01: Yeah.
• 3:12
  SPEAKER_01: Yep.
• 3:13
  SPEAKER_01: I mean, look, I think there there certainly is gonna be a delay in the time timing of when comma letters get released.
• 3:20
  SPEAKER_01: We know this was an area they were focused on.
• 3:22
  SPEAKER_01: They said they were gonna focus on it at last year's AI CPA conference.
• 3:25
  SPEAKER_01: We've seen comments, a lot of the comments.
• 3:28
  SPEAKER_01: I think both of you probably have seen comments, you know, existing or current comments right now that haven't been publicly shared yet.
• 3:35
  SPEAKER_01: There may still be under review.
• 3:37
  SPEAKER_01: So obviously we we will see some delay and and but uh but I fully expect we'll see that those you know trends trends may change.
• 3:45
  SPEAKER_01: Um so, Jay, can you walk me through kind of what we're seeing with respect to comments on segments?
• 3:51
  SPEAKER_01: Sure.
• 3:51
  SPEAKER_04: No, thanks.
• 3:52
  SPEAKER_04: And Kyle, thanks for having me back on as well.
• 3:54
  SPEAKER_04: Love talking with uh with uh Kevin about this too.
• 3:57
  SPEAKER_04: And you know, as Kevin said, segments is always such an important area of disclosure because they allow investors to get a look at the business sort of through the eyes of management, as Stephen says, right in the standard.
• 4:12
  SPEAKER_04: And so the SEC is always focused on getting appropriately disaggregated information available to the investors.
• 4:19
  SPEAKER_04: And I think that focus is only going to continue to increase with the new guidance.
• 4:23
  SPEAKER_04: But it's interesting because the segments is an area where it's kind of hard to compare companies to their peers because it starts with internal reporting.
• 4:31
  SPEAKER_04: It's all based on how you report internally.
• 4:33
  SPEAKER_04: So no two companies are really going to be the same uh because it's really unique to their internal reporting structure.
• 4:40
  SPEAKER_04: And that's probably even more true with the significant expense disclosures that are now required, because even if companies are similarly organized to how they report broadly, they still may look at things at a different level of detail internally.
• 4:55
  SPEAKER_04: So I my sense is that could lead to even more comments as the SEC just tries to understand the companies they're reviewing and how they're how they're looking at things, because it's not always going to be the same one one to the other.
• 5:06
  SPEAKER_04: And then maybe once the SEC has seen a whole cycle of disclosures by the entire population of registrants, you know, through the whole year, then they'll start to focus in on what they perceive as maybe are outliers, I guess, one to the other.
• 5:19
  SPEAKER_01: Yeah, no, I think that's a great point because I it it does lend itself to hey, upcoming you know, conference season where you know the staff typically shares their observations and how they communicate segments, I would imagine is gonna be one of those items they talk about this this year at the conference.
• 5:37
  SPEAKER_01: Um and and certainly um, you know, as as you know, that the staff has been um talking about the standard in the past.
• 5:45
  SPEAKER_01: I mean, can Kevin, can you talk a little bit about you know what their current thoughts or what they've said?
• 5:51
  SPEAKER_01: Any thoughts there of what we've heard from the SEC?
• 5:53
  SPEAKER_03: Yeah, no, I think I think the probably the the biggest communication we've heard from them, and you are fully aware of this, as you're the chair of the SEC, uh the CAQ's uh regulations committee.
• 6:04
  SPEAKER_03: Um, so you were there uh when they when they provided these observations.
• 6:08
  SPEAKER_03: Um uh but they did provide some observations uh back in June timeframe uh about uh kind of their early perspectives on some of the adoption uh and some of the questions that they've been dealing with.
• 6:21
  SPEAKER_03: Uh so the first um, and and we've talked a lot about this, this notion of regularly provided and also included in the measure of segment profit or loss.
• 6:30
  SPEAKER_03: And I think the the main takeaway there, um, you know, not earth shattering, like it was consistent with what we'd heard with from them before, but um, these are concepts that existed before, right?
• 6:40
  SPEAKER_03: There's not new concepts that are being introduced uh in this new standard.
• 6:44
  SPEAKER_03: So, so uh, and certainly, you know, re-emphasizing that those words matter, uh, they're important.
• 6:49
  SPEAKER_03: And so you need to be looking at the specific words and the standard and thinking about those.
• 6:53
  SPEAKER_03: Uh, and then when you think about regularly provided, right, and this is again similar to their feedback in other areas, it's it's not just one particular piece of information, right?
• 7:03
  SPEAKER_03: Like it can there can be information flows in a variety of different ways, especially as technology is advanced, uh, right.
• 7:09
  SPEAKER_01: So you need to kind of access to information is yeah a lot higher than than maybe it was before.
• 7:15
  SPEAKER_03: Right.
• 7:15
  SPEAKER_03: So casting a wide net um and the and the substance of information rather than rather than any particular form.
• 7:21
  SPEAKER_03: Um and then finally, you know, they acknowledge uh that that there's judgment in determining what is a significant expense.
• 7:29
  SPEAKER_03: Uh and so um, you know, as they talk about in other areas of gap, you know, exercising good, prudent judgment, reasonable judgment uh is important and uh and probably, you know, thinking about that as an area, the staff is gonna be focused is is often focused in comments on judgmental areas.
• 7:48
  SPEAKER_03: Um, but really the key thing is they want to understand what is that judgment, what's the process that you undertook uh to get that.
• 7:54
  SPEAKER_03: So I I think, you know, it all consistent with the discussions we were having leading up to and and even following uh the implementation of the new standard.
• 8:03
  SPEAKER_01: Yeah.
• 8:04
  SPEAKER_01: So so you know, obviously we we know that that we'll expect to see more comments from the staff as we get into Q4 and then get to 2026.
• 8:14
  SPEAKER_01: Anything that we can share at this point specific to the adoption of of the new standard.
• 8:18
  SPEAKER_04: Well, yeah, maybe I'll start and Kevin, you can add your thoughts here too.
• 8:22
  SPEAKER_04: And maybe just a level set on what the standards are, the the additional disclosure requirements of the new standards, which is kind of frames what a lot of these questions are about, is that uh the the real key change in the new standard is the disclosure of significant expenses, which is sort of defined as expenses that are regularly provided to the chief operating decision maker or CODM.
• 8:46
  SPEAKER_04: I'm sure we'll use that acronym a bunch here in the rest of the podcast.
• 8:50
  SPEAKER_04: Uh so it's provided to the CODM, it's included in a measure of segment profit or loss, and it's significant, but there's no numerically uh defined thresholds for that, and therefore the judgment, Kevin, that you were you were talking about there.
• 9:06
  SPEAKER_04: So that's that's the biggest change.
• 9:08
  SPEAKER_04: Uh another big change in the standard is an ability to report or disclose multiple measures of segment profit or loss.
• 9:15
  SPEAKER_04: So prior to this new guidance, you were only allowed to have one measure disclosed.
• 9:20
  SPEAKER_04: Now you are allowed, if you want, to also disclose an optional second or third or fourth measure, however many you want.
• 9:27
  SPEAKER_04: Um we'll touch on that in a minute because that definitely deserves some more airtime.
• 9:31
  SPEAKER_04: And we've we've talked about that a lot in the past.
• 9:33
  SPEAKER_04: Uh and then the update also made it explicit that all of the disclosure requirements in the standard are also required for a single segment business, which wasn't always clear or consistently followed by everyone before.
• 9:45
  SPEAKER_04: Uh and did extend most of the disclosure requirements to the interim financials as well.
• 9:50
  SPEAKER_03: Yeah.
• 9:50
  SPEAKER_03: And I think maybe, maybe a couple other impactful changes uh were just in more of the kind of like the narrative disclosures.
• 9:57
  SPEAKER_03: Uh so one defining who the CODM is, uh, or if it's a CODM group, uh defining who the group is.
• 10:03
  SPEAKER_03: Uh and then another one, right, you're disclosing your measure of segment profit, but but they added in a disclosure of how the CODM uses that measure of segment profit uh to assess performance and and allocate resources.
• 10:14
  SPEAKER_01: Yeah, and it's interesting because I've actually seen the staff just issue that comment.
• 10:19
  SPEAKER_01: No other comments.
• 10:20
  SPEAKER_01: Right.
• 10:20
  SPEAKER_01: And just issue that comment.
• 10:21
  SPEAKER_01: So I think you know, it's it's it's definitely a sleeper issue of who is the CODM.
• 10:26
  SPEAKER_01: You know, I think it's very important.
• 10:27
  SPEAKER_01: And of course, like you said, how how they're using the measures.
• 10:31
  SPEAKER_04: Yeah, and I think in terms of the themes of the comment letters that we've seen so far, it is a lot of what I'd call blocking and tackling kind of compliance type questions to that to that point, Kyle.
• 10:43
  SPEAKER_04: So, you know, at this point, anyways, less focused so far on why a particular measure of profit or loss was chosen or understanding the significant segment expenses that were disclosed, and more just questions about ensuring that all the required disclosures are captured somewhere.
• 11:00
  SPEAKER_04: Uh so to your point, I I'll give I'll add a I'll add a little bit of data to your um to your observation there, Kyle, that we've we've seen a lot of comments about you know, while the a measure of segment profitability is being disclosed and what it is is being disclosed, it's a little unclear in the disclosure about how the CODM is using that measure.
• 11:22
  SPEAKER_04: I think, in fact, of the publicly filed and available comment letters on the SEC's Edgar database, you know, once they've gone through the whole cycle and are posted publicly, about or even a little bit more than two-thirds of those have that comment in it.
• 11:35
  SPEAKER_04: And sometimes it is the only comment that's in there.
• 11:37
  SPEAKER_04: So we we do see that one probably that's leading the charge right now in terms of what the comments are.
• 11:43
  SPEAKER_04: But we also continue to see questions, I would say, mostly geared towards single operating segment companies asking if all the required disclosures are included, which they need to be.
• 11:55
  SPEAKER_04: And for for some of these companies, they may have concluded that the segment expenses and other items that need to be disclosed are the same as what's in the consolidated statements, and therefore they didn't really need a separate table of expenses in the footnote because the standard says you don't have to duplicate things.
• 12:12
  SPEAKER_04: But here, many companies maybe included a note to that effect that they were the same, but if they didn't, then some received comments asking for clarification about how they thought about it.
• 12:24
  SPEAKER_04: We we have seen some comments related to significant expenses, but again, so far they're a little bit more related to compliance.
• 12:32
  SPEAKER_04: You know, in particular, the guidance says you have to disclose significant expenses for each reportable segment.
• 12:39
  SPEAKER_04: And then you're also supposed to have a separate other segment item.
• 12:42
  SPEAKER_04: Sorry, I'm using my air quotes.
• 12:44
  SPEAKER_04: I know our listeners can't uh see that.
• 12:47
  SPEAKER_04: To be a video podcast.
• 12:48
  SPEAKER_04: I think good.
• 12:49
  SPEAKER_04: Um you need to report an other segment items line that captures anything that's not a significant expense, but is needed to reconcile down to your profitability measure.
• 12:58
  SPEAKER_04: And for that other bucket, while you don't have to quantitatively disaggregate the amounts, you are required to qualitatively discuss what's included.
• 13:07
  SPEAKER_04: So some of the comments we've seen have been around I'll call it the omission of this disclosure requirement, or maybe it left the SEC kind of confused if all the requirements were met, because either there wasn't much disclosure about what the significant expenses were, or there wasn't a discussion of other segment items, or it just wasn't clear if some of the expenses you were disclosing was a significant expense or a other segment item.
• 13:33
  SPEAKER_04: So just lots of interesting things that we've we've seen here.
• 13:37
  SPEAKER_04: You know, probably as more comments come out and we look ahead into what the future of what these comments might look like.
• 13:44
  SPEAKER_04: Yeah, we certainly might see more questions about what are the significant expenses, but but so far we haven't really seen a lot of probing questions in that area.
• 13:51
  SPEAKER_03: Yeah.
• 13:52
  SPEAKER_03: And I think I think one thing too, maybe just maybe a little bit of a pointer, but um, you know, I think the the standard has an example of what the disclosure and what the reconciliations uh and all that information can look like.
• 14:04
  SPEAKER_03: It's not right, you're not required to follow that format, but but I think I've seen some comments where the staff has a little bit of that confusion.
• 14:12
  SPEAKER_03: Um, when you look at the disclosure, it doesn't follow that format.
• 14:16
  SPEAKER_03: So sometimes the just the mechanism of how you present it might drive that.
• 14:20
  SPEAKER_03: So um, you know, companies may want to think about that table and think about like, do we just want to use that same format?
• 14:25
  SPEAKER_03: Because then it, you know, maybe that adds clarity.
• 14:27
  SPEAKER_01: I mean, that I think it's a it's worth at least looking at others.
• 14:31
  SPEAKER_01: Um, you know, if if you're a company that, you know, you you weren't you were concerned a bit maybe about your you know presentation or disclosure.
• 14:39
  SPEAKER_01: You'll obviously look at at competitors, look at others, see how they've done it, see comments, like you said, like what what are people commenting on?
• 14:46
  SPEAKER_01: Because the staff may just not have picked up that filing for review.
• 14:49
  SPEAKER_01: They may get picked up this year, and then boom, you have to deal with it.
• 14:52
  SPEAKER_01: So, you know, but it's it's always good to take a fresh look.
• 14:56
  SPEAKER_01: You may have already adopted it, um, but you know, I think most have at this point, but you know, you you you need to be thinking about those disclosures, continue to evaluate them and and consider what the staff's comments.
• 15:06
  SPEAKER_01: So um obviously very interesting to hear that.
• 15:08
  SPEAKER_01: And I think Jay, your your point on the significant segment expenses and what you know them diving a bit deeper, I think is is a good one.
• 15:15
  SPEAKER_01: Um, you guys talked a little bit about you know the what changed in the new standard.
• 15:20
  SPEAKER_01: One of the things was was that that really stands out to me, and it's it's an area that I've you know worked with both of you on and had a lot of conversations with um with companies about, which is you know, you the ability to use or disclose more than one measure of of segment profit or loss.
• 15:38
  SPEAKER_01: Um, what do we see companies do?
• 15:40
  SPEAKER_01: And Kevin, you talk a little bit about me not just what companies have done.
• 15:44
  SPEAKER_01: Um, I know I you probably can't even tell me how many companies you've collectively spoken to.
• 15:50
  SPEAKER_01: I'm guessing probably a couple of hundred um combined.
• 15:53
  SPEAKER_01: Um maybe add mine on top would be even more.
• 15:56
  SPEAKER_01: Um, so it's obviously an area that we've spent a lot of time on.
• 15:59
  SPEAKER_01: But what we see companies do, and then also talk about how the that second measure, that additional measure, interacts with the SEC's existing non-gap uh roles.
• 16:09
  SPEAKER_03: Yeah, and and you mentioned the the podcast uh a couple years ago.
• 16:13
  SPEAKER_03: I think it was right after the December uh AI CPA conference in in 23, and and um, and that's when some of the some of these perspectives came out, and and uh so there was some confusion on that.
• 16:25
  SPEAKER_03: Um but yeah, I mean I going back to in terms of in terms of the requirements and kind of how the FASB guidance and the SEC guidance works together, uh the standard clearly says uh you can use more than you can disclose more than one measure of segment profit.
• 16:39
  SPEAKER_03: You just have to include all the disclosures for each measure uh that you disclose.
• 16:43
  SPEAKER_03: Uh, but but it's optional, and that's the key point.
• 16:46
  SPEAKER_03: And so the staff has kind of reiterated, okay, well, the the the the required measure, uh, and and this is defined in the standard, uh, what is the required measure is the one that's calculated most consistent uh with the with the principals and the consolidated financials.
• 17:02
  SPEAKER_03: Uh and so, and that's that's not a new concept.
• 17:04
  SPEAKER_03: That's actually uh, you know, that concept of being um consist the one consistent with the consolidated financials has has existed.
• 17:12
  SPEAKER_03: Uh, but making that distinction of the required one, uh, which from the SEC's perspective is is now it's gap because it's required by gap that you disclose that item.
• 17:23
  SPEAKER_03: Uh, but say the CODM also gets other measures and the company wants to disclose those.
• 17:28
  SPEAKER_03: Well, if the company opts to disclose those as well, uh, then those are not required.
• 17:34
  SPEAKER_03: Uh, and so when you go to the definition of non-gap financial measures, uh, you get tripped up there.
• 17:40
  SPEAKER_03: And the staff has said, well, it's a non-gap measure, will allow you to still put the disclosure in the financials because the the FASB standard gives you optionality, uh, but you still have to in the filing include all of the non-gap disclosures around that.
• 17:54
  SPEAKER_03: Um, assuming it's calculate it's not calculated consistent with gap.
• 17:57
  SPEAKER_03: Sometimes companies will do a second measure um and it's calculated consistent with gap.
• 18:01
  SPEAKER_03: And that's fine.
• 18:02
  SPEAKER_03: And that's fine.
• 18:02
  SPEAKER_03: So that you can do as many of those as you want.
• 18:04
  SPEAKER_03: Say you have a segment pre-tax income and you segment gross profit.
• 18:08
  SPEAKER_03: Yeah.
• 18:08
  SPEAKER_03: Uh, and and the, you know, those are all calculated consistent with gap.
• 18:12
  SPEAKER_03: Like those are you don't have to worry about that.
• 18:14
  SPEAKER_01: Those are fine.
• 18:15
  SPEAKER_01: It's just the moment you say adjusted and you say adjusted twice, then you're one of those is going to be presented.
• 18:22
  SPEAKER_01: You know, you're gonna have to do the non-gap disclosures.
• 18:24
  SPEAKER_04: Or even if it's operating income and EBITDA.
• 18:27
  SPEAKER_04: Right.
• 18:28
  SPEAKER_04: Operating income might be gap.
• 18:29
  SPEAKER_04: EBITDA is certainly not gap because it's having back certain things.
• 18:32
  SPEAKER_04: That's when you would be in this realm of one that's having one not the gap.
• 18:36
  SPEAKER_04: That makes sense.
• 18:37
  SPEAKER_04: Yep.
• 18:37
  SPEAKER_03: So I with all of that laying out all that all that confusion and and kind of the the inner like how the interplay of those things, ultimately we did not see a lot of companies disclosing more than one measure.
• 18:50
  SPEAKER_03: Uh I, you know, I would say as the conversations evolved, I think there were a lot of companies that were very interested in doing it.
• 18:55
  SPEAKER_03: Um this is probably consistent with your experience too, that they wanted to explore it.
• 18:59
  SPEAKER_03: They thought it was useful information to investors.
• 19:01
  SPEAKER_03: Um, and then we walked them through everything we just talked through and they said, okay, never mind.
• 19:06
  SPEAKER_03: Um and and you know, and and so that may not have been the FASBI's intent, but you know.
• 19:11
  SPEAKER_03: Yeah.
• 19:11
  SPEAKER_03: But but that's and and and there is a piece of it too.
• 19:14
  SPEAKER_03: Like, look, I mean, this is something that that uh, you know, a lot of the conversations we had are like you can continue to monitor, right?
• 19:20
  SPEAKER_03: Like continue to monitor, and and as as people get more comfortable with some of this, right, we may see uh we may say evol evolution in in some perspective.
• 19:27
  SPEAKER_03: So I would say less than 10% of companies um did a second measure.
• 19:32
  SPEAKER_03: And of those that did, um, it was, you know, only a very small handful where the second measure was a non-gap.
• 19:38
  SPEAKER_03: Uh the one uh a lot of the ones that did, the second measure was also was a gap measure as well.
• 19:43
  SPEAKER_03: Uh and so I didn't see kind of the mechanics of this come into play too too much, uh, but it is out there.
• 19:51
  SPEAKER_03: Uh and uh what's interesting, you know, as I think the conversations continue.
• 19:55
  SPEAKER_03: And so now it'll be interesting to see heading into this year, does that number increase?
• 20:00
  SPEAKER_03: Because there was a population of companies that did it, right?
• 20:03
  SPEAKER_03: And so maybe others in their industry might look at it and say, well, hey, wait a second.
• 20:07
  SPEAKER_03: Our our peers did it.
• 20:08
  SPEAKER_03: Maybe we should do something uh to be comparable.
• 20:11
  SPEAKER_03: Um, you know, at this point, all of all of that guidance that we've talked about in terms of thinking about the non-gap interplay, like it's still it's still there.
• 20:18
  SPEAKER_03: There's been no change in views uh or anything like that.
• 20:22
  SPEAKER_01: Do you anticipate, Kevin, in in the new administration?
• 20:26
  SPEAKER_01: Is this an area that you think may be revisited?
• 20:31
  SPEAKER_01: Is it a would it be a priority?
• 20:33
  SPEAKER_01: Not necessarily.
• 20:35
  SPEAKER_01: I mean, I mean, you made it clear that you have something that's required disclosure and then you have optional.
• 20:42
  SPEAKER_01: And then when you looked at the interplay with the SEC's non-gap rules, it basically says you have to comply if it is truly that second measure's non-gap.
• 20:50
  SPEAKER_01: Do you think that the staff would revisit that?
• 20:53
  SPEAKER_01: Or do you think it's just it is what it is and people have moved on?
• 20:57
  SPEAKER_03: Yeah, I I think um I I don't think that something like this would be a top priority for them.
• 21:03
  SPEAKER_03: Uh we talked, you know, I think in another podcast, you know, we talked about non-gap and and some of the things there and and some potential changes just more broadly to non-gap.
• 21:12
  SPEAKER_03: Um so maybe it maybe it would get pulled into that.
• 21:15
  SPEAKER_03: I don't think that they would come after this directly per se, um, because I think it's it's something that uh, you know, look, people may not love the answer.
• 21:24
  SPEAKER_03: It's grounded.
• 21:25
  SPEAKER_03: Um, but it's you know, we understand, we understand when you get to it, we understand how to apply it.
• 21:29
  SPEAKER_03: Um and so it may not be the best bang for the buck in terms of in terms of what this administration may be looking to do.
• 21:36
  SPEAKER_04: And it does, I would say, if you do it, it clutters up the presentation a bit in the sense that what the SEC has said so far is that if you want to show a second measure, you have to do both the reconciliations that are required by the the the segment standard, which says reconcile your measure for profit or loss to consolidated pre-tax income.
• 22:00
  SPEAKER_04: But then you also have to do what the SEC says you have to do for non-gap disclosures, which is reconcile your non-gap measure to the closest gap measure.
• 22:09
  SPEAKER_04: And they come, they start one of them starts with the gap number and ends with the non-gap number, one of them starts with the adjusted number, ends with the gap number.
• 22:16
  SPEAKER_01: Perfect segue into the reconciliation.
• 22:19
  SPEAKER_01: Right.
• 22:19
  SPEAKER_04: So it's confusing.
• 22:20
  SPEAKER_04: And the SEC said that, well, if you want to show it, you know, you have to do reconciliations of both.
• 22:26
  SPEAKER_04: But if you want to, if you wanted to, you could put that non-gap reconciliation in the mDNA, right, instead of in the footnotes.
• 22:34
  SPEAKER_04: And frankly, for a variety of reasons, we we think that's the best advice, not to kind of get put more non-gap stuff than you have to in your footnote, just because now you're introducing lots of audit risk and control risk around that and questions around it.
• 22:47
  SPEAKER_04: So once people heard all of that to the point of, you know, they heard all this noise, they heard all this discussion, they heard all this stuff.
• 22:53
  SPEAKER_04: And many of them were already doing their non-gap disclosure in mDNA or press releases, anyways, and following Reg G and all that stuff.
• 23:01
  SPEAKER_04: So they were already used to that.
• 23:03
  SPEAKER_04: Their investors were used to that.
• 23:04
  SPEAKER_04: They kind of heard all this and said, we're just gonna keep doing that.
• 23:07
  SPEAKER_04: If we're gonna show it, we're just gonna do that.
• 23:08
  SPEAKER_04: So we're not gonna clutter up the footnote.
• 23:10
  SPEAKER_04: And that's why we saw so few companies do it, I would say, at the end of the day.
• 23:15
  SPEAKER_01: Yeah.
• 23:16
  SPEAKER_03: Yeah.
• 23:16
  SPEAKER_03: And maybe um since yeah, since we've transitioned to reconciliations, um, I think another area that we've seen comments, and this isn't, it's not necessarily from the new standard, although I think uh there was an example in the standard that got tweaked um in terms of showing this uh more consistent with what the words uh had had said.
• 23:36
  SPEAKER_03: Uh so we've seen this comment before.
• 23:38
  SPEAKER_03: You're required under ASC 280 to reconcile the total of your reportable segment profit um to pre-tax income.
• 23:45
  SPEAKER_03: Uh and so, but sometimes companies will have like a corporate and other um category, uh, just things that maybe don't get allocated to expenses.
• 23:54
  SPEAKER_03: It's all completely okay.
• 23:55
  SPEAKER_03: That's grounded in the in the standard that you can have that sort of thing.
• 23:59
  SPEAKER_03: Uh but it it just becomes a presentation format of, okay, so you've got segment A, segment B, um, and then companies were putting the corporate and other as like a third column, and then totaling not just the total of the reportable segment profit, but also the reportable segment plus corporate and other, right?
• 24:18
  SPEAKER_03: And so come into that total.
• 24:19
  SPEAKER_03: So we've seen the staff issue comments on that to say essentially the corporate and other should be a reconciling item to get from the total reportable segment profit down to pre-tox income.
• 24:29
  SPEAKER_03: It shouldn't be its own column.
• 24:30
  SPEAKER_03: Right.
• 24:31
  SPEAKER_03: Um, sometimes I think the reason companies do that sometimes is to give context for where, you know, where some of those items might sit.
• 24:39
  SPEAKER_03: Um, so I think I think the recommendation there is think about, you know, are there disclosures, right?
• 24:45
  SPEAKER_03: If if that's important context to give, can you do that through a disclosure versus having it as its own, as its own column?
• 24:52
  SPEAKER_04: Yeah, because I think as logical extension at the end of that is that if your, let's say your segment profit measure is an EBITA measure, an adjusted operating income measure, the guidance says, you know, you should have in your example, reportable segment A's profit measure, reportable segment B's profit measure, you should total those two up and then just in a bunch of lines reconcile that down to ending consolidated profit.
• 25:15
  SPEAKER_04: But if you have a corporate cost column or uh other segments, which are too small to be reportable, but they're operating activity, and you have a segment profit, you know, adjusted income or EBITDA number for that.
• 25:28
  SPEAKER_04: Now all of a sudden you've added across to a consolidated EBITDA or consolidated adjusted number.
• 25:33
  SPEAKER_04: And that's exactly what the SEC has been making all this noise about.
• 25:38
  SPEAKER_04: We don't want a consolidated non-gap number that's not required by the standard.
• 25:42
  SPEAKER_04: Your standard only requires your reportable segments to be added up and totaled, not the consolidated total.
• 25:48
  SPEAKER_01: Yeah.
• 25:49
  SPEAKER_01: Okay.
• 25:50
  SPEAKER_01: So so now I'm gonna turn uh kind of beyond the the impact of the new disclosures, new guidance, um, and and want to focus on on kind of the standard, like what we've the let's just say the ghosts of segments past, present, and future, right?
• 26:05
  SPEAKER_01: What we have seen.
• 26:06
  SPEAKER_01: So what should our listeners be thinking about um Jay related to segments and some of the thinking of that with that in mind, some of the combinator trends that we're seeing?
• 26:15
  SPEAKER_04: Right.
• 26:15
  SPEAKER_04: And some of them they they move beyond just segments into other areas.
• 26:20
  SPEAKER_04: And and maybe one important aspect of that is that you know there's a pretty significant correlation in the guidance between segments, particularly operating segments, and goodwill reporting units, because the starting point of your reporting units for goodwill is your operating segments.
• 26:37
  SPEAKER_04: So if you don't get your operating segments right, there's a good chance you don't get your reporting units for goodwill right.
• 26:43
  SPEAKER_04: And so sometimes what starts as a comment, nothing to do with the newsstand, just a comment about what are your segments and what are your operating segments, can definitely lead to questions about goodwill and impairment considerations.
• 26:55
  SPEAKER_04: And that obviously is a much more important problem to have if you have a problem in that regard.
• 27:01
  SPEAKER_04: And I would say that you know, just for our private company listeners on the podcast, right, this is something that's relevant for you as well.
• 27:09
  SPEAKER_04: Because while segment reporting itself is only a public company matter, it doesn't apply to private companies, um, the reporting unit determination does apply to you.
• 27:18
  SPEAKER_04: And then there's a couple of PCC alternatives you might be able to employ if you if you so choose, but for many of our private company lines don't do that.
• 27:26
  SPEAKER_04: So you need to get that right, even as a private company.
• 27:29
  SPEAKER_04: And then even if you are applying the PCC alternatives, the private company alternatives, we've seen several of those companies then go public or need to present it enough, you know, following the public company standards, the regular standards.
• 27:40
  SPEAKER_04: And then they have to go back and figure out what their segments and operating segments and reporting units would have been all throughout their history to kind of undo that that uh PCC accounting.
• 27:51
  SPEAKER_04: So uh appreciating the impact of operating segments on your goodwill is another sort of trend coming out of these uh comments.
• 27:58
  SPEAKER_01: No, I and I'm glad you highlighted that.
• 28:00
  SPEAKER_01: I think it's it's important for us to be mindful.
• 28:03
  SPEAKER_01: I mean, obviously, you know, private companies are certainly impacted.
• 28:07
  SPEAKER_01: So um, you know, them understanding the importance and the how the interoperability works between operating segments, Google impairment testing.
• 28:14
  SPEAKER_01: Um, you know, Kevin, you talk a little bit for me about some other key themes that that you're seeing in comment letters.
• 28:21
  SPEAKER_03: Yeah, yeah.
• 28:21
  SPEAKER_03: I mean, I think that point, uh building on that, right?
• 28:24
  SPEAKER_03: We see comments asking about the identification of the operating segments.
• 28:28
  SPEAKER_03: Um, and and I was thinking back on this and I was like, you know, we talk about so I I thought back to to my early days at the SEC.
• 28:35
  SPEAKER_03: This is many, many years ago.
• 28:37
  SPEAKER_03: And and Kyle, I reminisce with you a little bit.
• 28:40
  SPEAKER_03: Remember, like we used to, when we get assigned a filing to review, um, we would get the filing, and the first thing we would do is we would print it, but we could we didn't have printers right there.
• 28:49
  SPEAKER_03: We had to send it downstairs uh to do a large print job.
• 28:53
  SPEAKER_03: And so we would send that off.
• 28:54
  SPEAKER_03: And so meanwhile, you have to wait a little while for that to print out and and to get the function.
• 28:57
  SPEAKER_01: You might get it like a week later.
• 28:59
  SPEAKER_03: Yeah.
• 28:59
  SPEAKER_03: So you've got to occupy your time.
• 29:00
  SPEAKER_03: So what do you do?
• 29:01
  SPEAKER_03: Well, you start looking at the company's website, you start looking at their earnings calls, their earnings presentations, um, right?
• 29:08
  SPEAKER_03: Like you just start looking at all this other information uh to get smarter about the company, right?
• 29:13
  SPEAKER_03: Especially, you know, in the early days post-SOX, right, when we were looking at companies that hadn't been looked at in a long time.
• 29:19
  SPEAKER_03: Um, and so, and that's really what the like that is what the staff will do.
• 29:23
  SPEAKER_03: They will look at all that other information.
• 29:25
  SPEAKER_03: Um, I used to do all of that before I even picked up the 10K to start looking at it, before I even, you know, went into the financials.
• 29:32
  SPEAKER_03: Uh, so you want to understand how the company talks about it.
• 29:34
  SPEAKER_03: So they'll see things uh the way the company talks about their business, the way they talk about their results, and they may be talking about different lines of services or lines of products, right?
• 29:43
  SPEAKER_03: And then you look at the segment footnote and it's just a geographic segment, right?
• 29:47
  SPEAKER_03: Or something like that.
• 29:47
  SPEAKER_03: And so the staff's gonna be like, okay, well, tell us more.
• 29:50
  SPEAKER_03: How did you identify your operating segments?
• 29:52
  SPEAKER_03: Uh, and how did you um how did you get, you know, how did you get to your conclusion, right?
• 29:58
  SPEAKER_03: And and that is the starting point, um, right.
• 30:00
  SPEAKER_03: And even before that, identifying your CODM, you know, asking questions about that.
• 30:05
  SPEAKER_03: Now that's a disclosure.
• 30:06
  SPEAKER_03: I think that's why we see that as a disclosure, because um, you know, the the SEC certainly felt that that was important information uh as well.
• 30:15
  SPEAKER_03: Um, and then we kind of uh, you know, we kind of talked about this as well, like in terms of the questions is is, you know, they cast a pretty wide net in terms of what sort of information they're looking at.
• 30:26
  SPEAKER_03: And it's not just um it's not just, you know, what's in the reporting package, right?
• 30:31
  SPEAKER_03: It's it's other information as well, getting back to what we talked earlier in terms of of the wide flow of information uh to the CODM.
• 30:39
  SPEAKER_01: Yeah, no, I think those are are obviously you know great points there.
• 30:43
  SPEAKER_01: Cause I as I think about it, we'd always ask for the CODM reports.
• 30:47
  SPEAKER_01: Um, I think as as I would look at with all the information you were you were talking about before you pick up the filing, you'd open it up and look and say, well, this isn't what I expected to see.
• 30:57
  SPEAKER_01: Right.
• 30:58
  SPEAKER_01: Right?
• 30:58
  SPEAKER_01: MDNA is not just, or maybe MDNA is discussing, or description of business is discussing some things that maybe are not reflected in in the the financial statement footnotes.
• 31:09
  SPEAKER_03: And there can there can be valid reason.
• 31:11
  SPEAKER_03: Like I'm not saying just because you talk about your business like one way that that you know the the reporting, the segment reporting can't be the other, but but just know if you're out there talking about your business in one way and that that's different from your segments, right?
• 31:24
  SPEAKER_03: You're you're probably gonna have a uh you know increased chance of comments.
• 31:28
  SPEAKER_03: And so you need to make sure you've got a a good explanation for that and that it's supported by by the information that's being uh provided to the CODM.
• 31:36
  SPEAKER_01: So so it doesn't sound like the back and forth that that any company wants to have with the SEC.
• 31:43
  SPEAKER_01: Um and and especially if you start sending in you know summaries of of you know all of this information and these materials, um, org charts, you know, uh summary of your CODM package.
• 31:55
  SPEAKER_01: I guess I guess the the the kind of the quick question for both of you uh is are is the staff asking for the CODM package or are they just asking for summaries?
• 32:06
  SPEAKER_04: Well, I think it varies.
• 32:07
  SPEAKER_04: We have seen questions in the past where they have asked for the package.
• 32:11
  SPEAKER_04: And as you said, usually things can start to go sideways a little bit if you're sending in lots and lots of information.
• 32:17
  SPEAKER_04: Now, I get the send sometimes they might ask for summaries of it as opposed to the whole the whole details because they were tired of getting big, you know, lots of boxes and boxes and boxes of folders and information.
• 32:30
  SPEAKER_04: And to some degree, as as I think you pointed out earlier, uh Kevin, that what's regularly provided to and regularly reviewed by the CODM isn't limited to some printed PDF file, right?
• 32:42
  SPEAKER_04: The quarter the monthly or quarterly package, right?
• 32:44
  SPEAKER_04: There's lots of other dashboards and other things.
• 32:46
  SPEAKER_04: So even the notion of like sending send me the CODM package is a little bit of a misnomer because it isn't necessarily one thing.
• 32:53
  SPEAKER_04: So there's more of some dialogue of what are what is the information that's being shared.
• 32:58
  SPEAKER_04: But you know so a lot of times I find, anyways, I don't know, be interested in your thoughts or maybe both your guys' ex experience from the other side of the pen here, uh that when the questions start getting into they want all this detail, it's often because they've asked some questions and they got initial answers that maybe didn't make sense to them or was a little concerning to them.
• 33:20
  SPEAKER_04: So they're starting to dig in a little starting to dig in a little bit more.
• 33:23
  SPEAKER_03: Yeah.
• 33:24
  SPEAKER_03: Yeah, I completely agree.
• 33:26
  SPEAKER_04: So I would say, you know, beyond that, you know, along the CODM, and but it ties into all of that, is you know, the other area that is a an oldie but goody as it relates to uh comments is around aggregation of operating segments.
• 33:41
  SPEAKER_04: And um you know the guidance does have this notion that once you determine your operating segments and and figured out which ones are big enough to potentially be reportable segments, you are allowed to aggregate two or more operating segments into one reportable segment if you meet certain criteria.
• 33:58
  SPEAKER_04: But while that is out there, it's a pretty high hurdle and the burdens on the company to demonstrate and support why they are similar.
• 34:06
  SPEAKER_04: And that has to be both from an economic and financial results perspective, as well as a number of qualitative factors like the nature of customers or the production process or distribution methods or regulatory environments, some other things.
• 34:20
  SPEAKER_04: And so if a company has reported that they aggregated, because it is required disclosure to say if you have aggregated, then the SEC may certainly ask questions that I'll say dig into that conclusion and ask questions around what what financial metrics were being looked at and what are the historical results and what are the forecasts and you know how are they going to converge if they haven't converged yet, um, to try to understand the economic similarity of the segment and then also some of the qualitative considerations I uh got into as well.
• 34:51
  SPEAKER_04: So we see that question a lot.
• 34:53
  SPEAKER_04: And I think the reason why it's a common area of question and a high hurdle to get to, it kind of gets back to the core principle of the segment guidance in the first place, which is to try to provide investors with disaggregated information to see the business the way the management sees the business.
• 35:10
  SPEAKER_04: And the thought is well, if the CODM is receiving information at a more granular level than it's being disclosed, then a registry wouldn't be valuable to investors at the end of the day.
• 35:24
  SPEAKER_01: No, I mean it's certainly a lot to think about there.
• 35:27
  SPEAKER_01: And, you know, as you guys have highlighted, uh, you know, it it's an area, when you think about segments, you really need to be detailed in your analysis.
• 35:35
  SPEAKER_01: And I don't believe it's a kind of a one-time thing and you're done.
• 35:39
  SPEAKER_01: It's you're always evaluating changes in your business, you're looking at your segment disclosures, um, you're doing it quarterly.
• 35:46
  SPEAKER_01: Um, and and of course, you know, you that that is something that you need to be thinking about, you know, evaluating the conclusions you've reached.
• 35:54
  SPEAKER_01: And so I think, you know, as we've talked about, it's it's obviously how big you know the management sees the business um, you know, and and that's the whole point through the eyes of management.
• 36:03
  SPEAKER_01: I think Kevin, you mentioned earlier.
• 36:05
  SPEAKER_01: So you think about that, businesses evolve, CEOs come in, come and go.
• 36:10
  SPEAKER_01: All right, so you may have new C O DMs, you have restructuring.
• 36:13
  SPEAKER_01: So there's a lot of changes that could happen at a company.
• 36:16
  SPEAKER_01: You've acquired a new business, you've disposed of of certain product lines or or even geographies.
• 36:23
  SPEAKER_01: Um, how does that impact your segments?
• 36:25
  SPEAKER_03: Yeah, I mean, I think as you said, there there's not a set, you know, you reassess, you know, annually, you know, like you have on goodwill or anything like that.
• 36:34
  SPEAKER_03: There's not like a set, it's it's an ongoing consideration.
• 36:37
  SPEAKER_03: Uh, and and you know, sometimes it it doesn't happen overnight necessarily the way the information is reported evolves.
• 36:43
  SPEAKER_03: So you need to constantly be thinking about that.
• 36:46
  SPEAKER_03: Um, but when you do get to a point where where say you are gonna change, uh, change the operating segments, um, you know, the standard requires that you recast uh all the prior periods.
• 36:57
  SPEAKER_03: So so a lot of times we'll see companies, um, maybe, maybe that change comes into play at year end, uh, maybe it goes into play Q1.
• 37:06
  SPEAKER_03: Uh, but essentially any comparable periods that are included in that filing, you would need to recast uh to reflect that change in segment, uh, segment there.
• 37:15
  SPEAKER_03: And so, you know, you can also have situations where maybe there was a segment that was small, right?
• 37:20
  SPEAKER_03: It was below the quantitative thresholds and it didn't meet the criteria to be broken out.
• 37:24
  SPEAKER_03: And now you're breaking that out.
• 37:27
  SPEAKER_03: And you need to think about as well, I think associated with that, one conversation we have a lot of times with our companies is is how that might impact future registration statements, especially if you're in that example where you change in Q1 uh and you've reported that change from Q1 and then and then after that you go to access the markets.
• 37:46
  SPEAKER_03: Uh, there may be situations, you know, depending on on how you're accessing the markets, where where you are where you need to like change the prior year annual periods as well.
• 37:57
  SPEAKER_03: Go ahead and get that and file an AK that that puts the that recast the annual financial statements versus you know, if you're not in that situation, you just kind of do it in your normal course each quarter, you'll recast the prior comparable period.
• 38:10
  SPEAKER_03: And then when you get to year end, you'll recast the prior years uh to get to that.
• 38:15
  SPEAKER_03: Um, and I know, you know, we think about you kind of talked about private companies and it got me thinking a little bit as well, uh, because we're seeing a lot of this as well right now is is you might have spin spin-offs, you know, and so you're doing carve out financials.
• 38:28
  SPEAKER_03: And so for the carve for that carve out entity, right?
• 38:31
  SPEAKER_03: It's that same concept of thinking about the segments uh for that carve-out entity and and and usually statement associated with that.
• 38:40
  SPEAKER_03: Uh so thinking about the same considerations there.
• 38:42
  SPEAKER_01: And that's the weird thing is a lot of times they've not always named their CODM or who the CEO is going to be.
• 38:48
  SPEAKER_01: Like, what does that look like of that new spun-off company?
• 38:51
  SPEAKER_03: And maybe historically it was a it was a segment, right?
• 38:53
  SPEAKER_03: And so you're essentially going down a layer.
• 38:55
  SPEAKER_03: So previously, whoever the you had the CODM of the consolidated company, but you had a segment manager there.
• 39:01
  SPEAKER_03: So, you know, a lot of times you might circle that segment manager and be like that person is is kind of the CODM of those separate carve out financials.
• 39:09
  SPEAKER_01: And um, so it's you could have a segment change at both companies.
• 39:12
  SPEAKER_03: Right.
• 39:12
  SPEAKER_03: Right.
• 39:13
  SPEAKER_03: And or you could have different, right?
• 39:14
  SPEAKER_03: You could have different levels of reporting at the consolidated company versus what you have to do for the carve out.
• 39:19
  SPEAKER_03: That's a great point.
• 39:20
  SPEAKER_04: And then certainly if you know if you're a private company that's just going through the IPO process in general, first time you're gonna have to report on segments.
• 39:27
  SPEAKER_04: Maybe you had to do it for goodwill, but just don't underestimate the amount of time it could take to do that, get that on your radar early to get that in the right.
• 39:35
  SPEAKER_01: Well, I mean, and and and I think that's a great point, Jay, because that information flows through the rest of the filing, right?
• 39:40
  SPEAKER_01: It is how you message to the market and what your MDNA is going to reflect it.
• 39:45
  SPEAKER_01: You know, that discussion and analysis is going to reflect the the business.
• 39:50
  SPEAKER_01: Um, and so the segments get you know, getting that right and not ignoring it uh uh uh during the IPO is a that's a great, that's a great point.
• 39:58
  SPEAKER_01: You guys have covered a lot of ground.
• 40:00
  SPEAKER_01: Um really appreciate um kind of all the insights.
• 40:04
  SPEAKER_01: But uh to close this out, any final remarks uh for what companies our listeners should be thinking about or expecting to hear from the SEC going forward related to segments?
• 40:14
  SPEAKER_03: Yeah, I mean, I think I'll start off.
• 40:16
  SPEAKER_03: I mean, I I think you know, if I had to predict, I I think I would I would say probably this is gonna be an area where we're gonna see an increase in comments uh going forward.
• 40:26
  SPEAKER_03: Um it is like we've gone through this period of digesting the new disclosures.
• 40:30
  SPEAKER_03: Uh it I think it's gonna be interesting to see, like uh like we were talking about, do they do they specifically target comments on significant expenses?
• 40:39
  SPEAKER_03: Or I actually think maybe, you know, more likely it may be we talked about how sometimes they'll just ask general questions to get an understanding of identification of the operating segments.
• 40:47
  SPEAKER_03: And there's kind of a series of questions that they ask associated with that.
• 40:51
  SPEAKER_03: So um, you know, it may be that they they use that as when they're in that situation asking those comments that they also ask about, well, how did you think about your significant expenses?
• 41:00
  SPEAKER_03: Uh so we'll see.
• 41:01
  SPEAKER_03: I mean, you know, I think obviously they want to make sure companies are complying with the standard.
• 41:06
  SPEAKER_03: Uh, and so, you know, we may still see those comments as well.
• 41:09
  SPEAKER_03: But we I I do think that we'll start to see them go a little bit deeper uh on some of the concepts versus just the compliance focus that we've seen so far.
• 41:18
  SPEAKER_04: Yeah, and maybe I'd echo that a bit.
• 41:20
  SPEAKER_04: And I think we we hinted at this a little bit and how we talked about the the significant expense disclosures before, but maybe I'd pick on a few words in the standard and and point out that the determination of significant expenses is based on, and the phrase is what's regularly provided to the CODM, and that was a purposeful choice of words.
• 41:42
  SPEAKER_04: Uh there was a lot of debate at the time of the standard being developed and refined as to whether the phrase would be regularly provided or regularly reviewed here, which is language that's used in other spots of the of the historical segment standard.
• 41:57
  SPEAKER_04: And the FASB landed on regularly provided.
• 42:00
  SPEAKER_04: And so that basically means that if the CODM is regularly getting information in whatever form it is, then it's in play for potential disclosure.
• 42:09
  SPEAKER_04: You can't say they get it, but they don't look at it at the end of the day.
• 42:13
  SPEAKER_04: But I think, you know, even if you go back a layer to what your operating segments are in the first place, where the guidance does actually use the phrasing of what information is regularly reviewed by the CODM, there's still pressure, I would say, on situations where something is provided but the conclusion is made that it's not regularly reviewed by the CODM.
• 42:36
  SPEAKER_04: And we do hear that a lot, but it's a tough one, a tough argument to make.
• 42:39
  SPEAKER_04: Because it really just qu triggers the question of, well, if the C ODM is getting it, then why why aren't they using it?
• 42:46
  SPEAKER_04: And can you really just sort of unsee it, right?
• 42:48
  SPEAKER_04: If you've gotten it, can you sort of unsee it and forget that you've ever seen it?
• 42:51
  SPEAKER_04: And if you're not really using it, why are they getting it in the first place?
• 42:55
  SPEAKER_04: Right.
• 42:55
  SPEAKER_04: So it's all interesting questions that that come up.
• 42:57
  SPEAKER_04: So I think you know, we we've said this before in previous podcasts and and other forums, but you know, but you really have to be thoughtful about the overall mix of information the CODM is receiving uh because it's a lot better of an argument to say something isn't meaningful decision-making if it's just not being provided at the end of the day.
• 43:18
  SPEAKER_04: And so as I often like to say, you guys have heard me say this a bunch, right?
• 43:21
  SPEAKER_04: You have to be intellectually honest with yourself about what information the CODM is getting in order to reach thoughtful conclusions.
• 43:28
  SPEAKER_04: Yeah.
• 43:29
  SPEAKER_01: No, I I think I think I'm glad you you mentioned that because I think it's important to highlight for people that those words have a meaning, right?
• 43:38
  SPEAKER_01: And it's something that the FASBE clearly knew or knows from their experience and seeing how companies have complied with the rules over the years, the segment standard, the SEC's comment letters on the topic, right?
• 43:52
  SPEAKER_01: It's that distinction, I think that nuance um is really important to highlight.
• 43:57
  SPEAKER_01: So um really want to thank you both just just for taking the time.
• 44:02
  SPEAKER_01: I'd say the my my last takeaway really is just reiterating the point you shared at at the beginning, um, which is stay tuned, right?
• 44:11
  SPEAKER_01: Because we will be covering kind of the AI CPA conference um and what the staff says about uh not uh all of these topics, segment measures, the the interaction with the non-gap disclosures.
• 44:23
  SPEAKER_01: Um, but certainly I do think segments will be, whether it's the office chief accountant or whether it's uh division of corporation finance, I imagine one or both uh will be discussing their observations on segment disclosures.
• 44:36
  SPEAKER_01: So with that, thank thank you both.
• 44:37
  SPEAKER_01: Yeah, thank you.
• 44:38
  SPEAKER_01: You're welcome.
• 44:40
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  SPEAKER_02: From Thought Leadership at PwC, I'm Heather Horn.
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