ASU 2023-07 significantly expanded segment disclosures under ASC 280 — and the most important change, the requirement to disclose significant expense categories regularly provided to the CODM, applies even to companies that report as a single segment. Pre-IPO companies that haven't mapped their internal management reporting to the new standard's requirements risk a surprise during S-1 review. The right time to do the CODM analysis, stress-test your segment determination, and align your reporting package is 12–18 months before filing — not during the SEC comment process.
Segment reporting rarely generates urgency in a private company's finance function. The question of how many segments you have tends to feel like a disclosure formality — something to sort out with your auditors once the IPO process is underway. ASU 2023-07, issued by the FASB in November 2023 and effective for public entities for fiscal years beginning after December 15, 2023, changed that calculus.
The amendment didn't change how segments are identified or how many you have. What it changed is what you have to say about them — and one of its most significant new requirements, the disaggregation of significant expense categories within each reportable segment, applies whether you have one segment or ten. For companies heading toward an S-1, the practical implication is that segment disclosure is now an area where preparation matters and where SEC staff are actively looking for gaps.
What ASU 2023-07 actually changed
The amendment to ASC 280 introduced four substantive changes to the existing segment disclosure framework. Significant expense categories — expenses that are both significant to a segment's results and regularly provided to the CODM — must now be disclosed separately for each reportable segment, along with a label for the remaining expense amount. The segment profit or loss measure used by the CODM must be identified and disclosed explicitly, along with a reconciliation to consolidated pre-tax income. The title and position of the CODM, and a description of how the CODM uses each measure to assess performance and allocate resources, must be disclosed. And for entities with a single reportable segment, all segment disclosures that apply to a reportable segment now apply — there is no longer a practical exemption from providing segment-level detail just because the company reports as one segment.
The significant expense category requirement is the one that takes the most work. It requires companies to look at what actually flows through to the CODM's management reports and map those line items — compensation and benefits, cost of revenue, cloud infrastructure, R&D program costs, or whatever the business tracks — against the new disclosure framework. If the CODM sees it regularly and it's meaningful relative to segment results, it belongs in the note.
Identifying the CODM — and taking it seriously
ASC 280 defines the chief operating decision maker as the function within an entity responsible for allocating resources to and assessing performance of operating segments — not necessarily a title, but a function. In most growing companies the CODM is the CEO, acting with or without the CFO, and the determination is straightforward. What makes this harder in practice is the phrase "regularly provided."
The test is evidentiary, not aspirational. The question isn't what the CODM could review or what the finance team could prepare; it's what package is actually distributed, to whom, and at what cadence. The management reporting deck, the P&L by business line in the ERP, the weekly operating report — these are the documents that anchor the CODM determination and the significant expense category analysis. Companies that have been running a detailed product-line P&L since Series B but reporting to investors as a single segment need to reconcile those two facts before the S-1 process starts.
The CODM can be a group. An operating committee, a board investment committee, or a joint CEO-COO function can qualify. The disclosure must name the function and describe how it uses the information it receives — vague descriptions like "to allocate resources" don't survive SEC comment. The more specific the description, the more it protects the segment determination.
Single-segment companies: not off the hook
One of the most practically significant aspects of ASU 2023-07 is the clarification that companies with a single reportable segment must now provide the same within-segment expense disclosures required of multi-segment companies. Pre-amendment, the single-segment entity had relatively minimal disclosure obligations. Post-amendment, a company that reports as one segment must disclose its significant expense categories (and the remaining "other" amount), the segment profit or loss measure used by the CODM, a reconciliation to consolidated results, and the CODM's title and description of use.
This matters for a large share of pre-IPO companies. Most growth-stage technology, SaaS, and services companies will report as a single segment — they operate one business with one P&L and one resource-allocation process. But "single segment" is not the same as "no disclosure required." The S-1 note on segment reporting will now need substantive content even for those companies, and SEC staff will read it.
The companies most at risk are those where the internal management reporting is more granular than the single-segment conclusion. A company that tracks product lines or geographies in detail but concludes it's one segment needs a clear, documented rationale for why the CODM aggregates across those lines for decision-making. The aggregation criteria under ASC 280-10-50-11 — similar economic characteristics, similar products and services, similar production processes, similar customers, similar distribution methods — require substantive analysis, not just assertion.
Mapping significant expense categories to your reporting package
The practical starting point for the significant expense category analysis is the management reporting package the CODM actually receives. Pull the last six to twelve months of that package — whatever combination of board materials, operating reports, and management P&Ls constitutes the regular package — and identify every line item that appears consistently and is material relative to segment profit or loss.
There is no bright-line materiality threshold in the standard. The FASB deliberately avoided a percentage-of-revenue or percentage-of-expenses test, leaving the determination to judgment informed by what the CODM actually tracks. In practice, line items that appear on the face of the management P&L are almost certainly significant; items buried in a supplemental schedule and rarely discussed in operating reviews have more flexibility.
The "other" bucket matters. The standard requires disclosure of the aggregate amount of expenses not separately presented — essentially, the residual. If that residual is large relative to total segment expenses, SEC staff will ask questions about what's in it and whether any component should be broken out. Running this analysis before filing lets you calibrate the disclosure and avoid an extended comment cycle.
Alignment with the income statement is required. Each expense category disclosed in the segment note must be reconcilable to the consolidated income statement. Companies that present a non-GAAP management P&L as the basis for CODM reporting — with adjusted EBITDA as the segment profit measure — will need to carefully document the reconciliation from that measure back to the GAAP income statement and ensure the reconciliation is clean enough to include in the note.
What the SEC is looking for in S-1 filings
SEC staff have been active in the segment reporting area even before ASU 2023-07. Comment letters from 2024 and 2025 show a recurring pattern: staff asking registrants to reconcile the segment conclusion against the structure of the management reporting package; to explain how operating results by product line, geography, or customer type are used (or not used) in CODM decision-making; and to provide more specific descriptions of what the CODM reviews and how it uses that information to allocate resources.
The comment risk for pre-IPO companies is concentrated in two scenarios. First, companies where internal reporting is more disaggregated than the segment conclusion suggests — product-line P&Ls that are reviewed monthly but dismissed as "below the CODM level" without clear documentation. Second, companies where the segment profit measure disclosed in the note (often adjusted EBITDA or contribution margin) doesn't match what's actually on the CODM's regular reporting package, creating a gap between the disclosure and the evidence.
The cleanest S-1 segment notes are built from the ground up: CODM identification documented in a memo, the reporting package preserved and tied to the disclosure, significant expense categories identified from that package, and the segment profit measure explicitly matched to the management report format. That preparation process takes weeks, not days — and it can't be compressed into the final S-1 sprint.
Effective dates and when pre-IPO companies need to act
For public companies, ASU 2023-07 was effective for annual periods beginning after December 15, 2023, with retrospective application — meaning the disclosures apply to all prior periods presented in the filing. For private companies, the effective date is annual periods beginning after December 15, 2024. Early adoption is permitted.
The retrospective application requirement is the detail that surprises most pre-IPO finance teams. When you file your S-1 and include three years of audited financials, the segment note for each of those years must reflect the ASU 2023-07 disclosures. That means the significant expense category analysis must be performed for each prior period — tied to the management reporting package that existed at that time, not reconstructed retroactively. Companies that don't have a clean archive of historical management reports face a harder retrospective exercise.
The companies that handle segment reporting well in their S-1 are the ones that started the analysis before they hired their underwriters — when there was still time to align internal reporting to the disclosure framework, rather than reverse-engineering a disclosure from a process that was never designed with public company requirements in mind.
The practical window to do this work is 12–18 months before an anticipated S-1 filing. That timeline allows for the CODM memo and segment determination to be reviewed with your auditors during an interim period, the reporting package to be archived consistently, any changes to the management reporting structure to be made deliberately, and the draft disclosure to be pressure-tested before it goes to underwriters and SEC staff.
Making the transition manageable
For most pre-IPO companies, the ASU 2023-07 transition is a documentation and alignment exercise more than a structural change. The segments you have won't change. The CODM function won't change. What changes is the rigor with which the determination is documented and the completeness of the disclosure that follows from it.
Start with a CODM memo. A short document — two to four pages — that identifies the CODM function by name and title, describes the management reporting package and its cadence, confirms what the CODM is reviewing to assess performance and allocate resources, and states the segment conclusion with reference to the aggregation criteria. Have it reviewed by your auditors. Revisit it when the management team, reporting structure, or business model changes materially.
Archive the management reporting package consistently from now through the IPO. The package that exists 18 months before filing is the evidence base for the retrospective application. If it changes materially, document why and preserve both versions.
Run the expense category analysis against the current package. Identify which line items are significant and regularly provided, draft the disclosure format, and confirm the reconciliation to the consolidated income statement closes cleanly. If the non-GAAP segment profit measure creates reconciling complexity, that's the time to decide whether to simplify the measure or invest in the reconciliation infrastructure.
If you're preparing for an IPO and want to stress-test your segment conclusion, CODM documentation, or draft disclosure against what the SEC is currently asking, we'd be glad to help.
This article is for general informational purposes and should not be relied on as accounting, tax, or legal advice for any specific transaction or filing. Please consult with your advisors.