How to Determine Your Reportable Segments Under ASC 280 (and What ASU 2023-07 Changed)

As of July 2026 · Written by Rohit Goel, US CPA · From the filing seat of a US-listed public company

Segment reporting is the disclosure area where the SEC staff most consistently refuses to take the filer's word for it. Comment letters routinely ask for the actual reporting package your chief operating decision maker receives, your board materials, and your org chart, because ASC 280 is built on the management approach: your segments are whatever your internal reporting says they are, not whatever your disclosure committee wishes they were. This tutorial works the determination in the order the standard does, then covers ASU 2023-07, which rewrote the disclosure layer for fiscal years beginning after December 15, 2023, including for companies with a single reportable segment.

What is an operating segment?

ASC 280-10-50-1 defines an operating segment as a component of a public entity with all three characteristics:

1. It engages in business activities from which it may earn revenues and incur expenses (including startup operations with no revenue yet, and intersegment activity);
2. Its operating results are regularly reviewed by the chief operating decision maker to allocate resources and assess performance; and
3. Discrete financial information is available for it.

The second criterion does the real work. The CODM is a function, not a title (ASC 280-10-50-5), usually the CEO, sometimes the CEO plus COO acting jointly, occasionally an executive committee. Identify the person or group that actually allocates resources and assesses performance, then inventory what they regularly review. If your CODM regularly reviews discrete P&Ls for three product lines, you have three operating segments, regardless of how the 10-K has historically been written. This is why SEC reviewers ask for the CODM package: the evidence of your segments is a document, and they want to read it.

How do the three 10% quantitative thresholds work?

An operating segment is separately reportable if it meets any one of the ASC 280-10-50-12 thresholds:

• Revenue: its reported revenue, including intersegment sales, is 10% or more of combined revenue of all operating segments;
• Profit or loss: the absolute amount of its reported profit or loss is 10% or more of the greater of (a) the combined reported profit of all segments that reported a profit, or (b) the absolute combined reported loss of all segments that reported a loss;
• Assets: its assets are 10% or more of the combined assets of all operating segments.

Two mechanics get missed. The profit-or-loss test uses the greater of the two absolute pools, a company with one big profitable segment and several small loss-makers must test the loss-makers against the profit pool, which is often the larger denominator. And the tests are applied to operating segments, so aggregation (below) happens first, thresholds second. Segments below every threshold may still be combined with each other to produce a reportable segment if they share a majority of the aggregation criteria (ASC 280-10-50-13), or disclosed separately if management believes the information would be useful.

When can you aggregate operating segments?

ASC 280-10-50-11 permits aggregating two or more operating segments into one reportable segment only if aggregation is consistent with the objective and basic principles of ASC 280, the segments have similar economic characteristics, and they are similar in all five qualitative factors:

1. Nature of the products and services;
2. Nature of the production processes;
3. Type or class of customer;
4. Methods used to distribute products or provide services;
5. If applicable, the nature of the regulatory environment.

This is the most-challenged judgment in segment reporting. "Similar economic characteristics" means the segments are expected to have similar long-term financial performance, the standard's example is long-term average gross margins. Two segments running 60% and 30% gross margins are not economically similar because both sell software. In comment-letter practice, the staff asks for several years of margin data by operating segment and probes divergence; a widening spread between aggregated segments is the classic trigger. If you aggregate, build the file now: margin trends, growth rates, and the five-factor analysis, refreshed annually. The assessor at app.unfoldingvalues.com generates exactly that support matrix from your operating segment data.

What is the 75% revenue test?

After identifying reportable segments, ASC 280-10-50-14 requires that total external revenue of reportable segments be at least 75% of consolidated revenue. If the segments you have identified capture only 70% of consolidated revenue, you must add reportable segments (even below the 10% thresholds) until you cross 75%. The remainder goes into an "all other" category, disclosed and reconciled but not a reportable segment. ASC 280 also notes a practical limit, as the segment count grows past roughly ten, consider whether further separation stops being useful.

What if we have a single reportable segment?

Single-segment reporting is legitimate, many sub-$500M companies genuinely run one business, with one consolidated P&L in front of the CODM. But it has to be true in the internal reporting, and it no longer exempts you from the segment footnote. Two pressure points:

First, the determination itself. If your CODM package contains discrete product-line or geographic P&Ls reviewed for resource allocation, "we manage the business on a consolidated basis" will not survive a comment letter. The staff reads your earnings calls and investor decks: if you discuss three businesses to investors and one to the SEC, expect the question.

Second, ASU 2023-07. Effective for fiscal years beginning after December 15, 2023 (interim periods within fiscal years beginning after December 15, 2024, retrospective application), the ASU explicitly requires entities with a single reportable segment to provide all ASC 280 disclosures, the new ones and everything that existed before. A single-segment 10-K now needs a real segment footnote: the measure of segment profit or loss, significant expenses, the CODM's identity and how the measure is used. The era of the two-sentence "we operate in one segment" footnote is over.

What does ASU 2023-07 require you to disclose now?

The core of the ASU is the significant expense principle: for each reportable segment, disclose the significant expense categories that are (a) regularly provided to the CODM and (b) included in the reported measure of segment profit or loss. Alongside it:

• An "other segment items" amount, the difference between segment revenue less significant expenses and the reported segment profit measure, with a description of its composition;
• The title and position of the CODM, and an explanation of how the CODM uses the reported measure(s) in assessing performance and allocating resources;
• All annual segment profit/loss and asset disclosures, now required in interim periods as well;
• Permission to disclose multiple measures of segment profit or loss, provided at least one is the measure most consistent with GAAP measurement principles.

The practical exposure for small caps: the significant-expense analysis is evidence about your CODM package. What you disclose as "regularly provided to the CODM" must match what a reviewer would find if they asked for the package, and post-ASU comment letters ask. Map the package contents to the disclosure line by line before drafting; the free ASC 280 segment reporting tool builds the disclosure plan from an inventory of your CODM reporting.

How do you document the whole determination?

One memo, refreshed annually and at every reorganization, acquisition, or CODM change: (1) CODM identification with the evidence; (2) inventory of regularly reviewed discrete financial information; (3) operating segment conclusion; (4) aggregation analysis with quantified economic similarity; (5) 10% threshold math; (6) 75% test; (7) ASU 2023-07 disclosure mapping. A reorganization that changes what the CODM reviews changes your segments, and requires recasting prior periods (ASC 280-10-50-34). The memo is your comment-letter response, written in advance.

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