The Chief Operating Decision Maker, or CODM, is the person or group inside a company that allocates resources among business units and judges how each unit is performing. Under U.S. GAAP segment reporting rules in ASC 280 and the parallel international standard IFRS 8, that function, rather than any specific job title, drives how a public company must break down its financial results. Getting the identification right matters because every other segment reporting decision flows from it: which pieces of the business get reported separately, what financial details must be disclosed, and how granular the public numbers need to be.
What the CODM Actually Is
ASC 280-10-50-5 defines the CODM as a function: the function of allocating resources to, and assessing the performance of, an entity’s operating segments.1Financial Accounting Standards Board (FASB). ASU 2023-07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures The CEO or COO often fills the role, but the standard explicitly contemplates that the CODM can be a group, such as a president together with several executive vice presidents. The label on someone’s business card is irrelevant. What matters is who actually makes the calls about capital spending, headcount, and budget priorities across divisions.
Because the definition is functional, two companies with identical org charts can land on different CODMs. A CEO who signs off on every division’s annual plan and personally reviews monthly results is a very different decision maker from a CEO who ratifies decisions already made by an executive committee. The first is likely the CODM alone. The second may not be.
How to Identify the CODM in Practice
Pinpointing the CODM requires looking at the real flow of authority inside the organization. Useful indicators include:
- Who approves operating budgets
- Who signs off on major capital expenditures
- Who decides whether to enter new markets
- Who hires or replaces division leaders
SEC staff frequently probes this by asking registrants which individuals report directly to the CODM, how often the CODM meets with those direct reports, and what information packages they review. If a company has a management committee, that committee is not automatically the CODM. Preparers need to evaluate whether any single individual on the committee holds override authority substantive enough to make that person the true decision maker.
The management approach that underlies ASC 280 ties directly into this analysis. Public financial disclosures must mirror how the business is actually run internally. If the leadership team manages by product line, the segment disclosures follow product lines. If they manage by geography, the segments are geographic. Investors are meant to see the business through the same lens as the people running it. That principle is also what stops a company from internally managing five distinct divisions and then reporting only two segments because the packaging looks cleaner. The SEC watches for that disconnect, comparing internal management presentations, board materials, and earnings call commentary against the segment structure in the financial statements.
Matrix Organizations
Companies organized in a matrix, where business components overlap by both product line and geography, face a specific challenge. Under ASC 280-10-50-9, when this overlap exists and the CODM reviews operating results at both levels, the operating segments are determined by whichever set of components the CODM primarily uses for resource allocation and performance evaluation. A global consumer goods company might track results by region and by product category, but if the CODM’s budget decisions and performance reviews center on the product categories, those product categories become the operating segments.
What Identifying the CODM Triggers
Once the CODM is identified, ASC 280-10-50-1 defines an operating segment as a component of the business that meets three conditions. It engages in business activities that generate revenue and incur expenses. The CODM regularly reviews its operating results. And discrete financial information is available for that component. All three must be present. A corporate headquarters function that earns no revenue and exists only to provide shared services would not qualify, even though its costs might be tracked separately.
The “discrete financial information” requirement trips up more companies than you might expect. Discrete means the component has its own identifiable financial data, such as revenue, operating costs, or some measure of profitability, that can be separated from the rest of the organization. If a division’s results are simply an allocated slice of a larger total that nobody tracks on its own, that division likely does not have discrete financial information. If it shows up in the CODM’s regular reporting package with its own profit or loss line, it almost certainly does.
Frequency matters too. If operating results for a component appear in the standard management reporting cycle, whether monthly, quarterly, or at some other regular interval, the “regularly reviewed” criterion is met. Information reviewed only once a year for strategic planning would likely fall short.
New Disclosures Tied to the CODM Under ASU 2023-07
ASU 2023-07 represents the most significant overhaul of segment reporting in over two decades. It applies to all public entities, including those with a single reportable segment, and is now fully effective for both annual and interim periods.1Financial Accounting Standards Board (FASB). ASU 2023-07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures Several of its new requirements attach directly to the CODM.
Disclosing Who the CODM Is
Companies must now state the title and position of the individual identified as the CODM, or the name of the group or committee if the CODM is a collective body.1Financial Accounting Standards Board (FASB). ASU 2023-07 Segment Reporting Topic 280 Improvements to Reportable Segment Disclosures A company might disclose, for instance, that its CODM is the senior executive committee consisting of the CEO, COO, and CFO. That transparency makes it harder for companies to retroactively claim a different CODM when regulators question their segment structure.
Significant Segment Expenses the CODM Sees
Companies must now disclose the significant expense categories that are regularly provided to the CODM and included within the reported measure of segment profit or loss. The standard does not define “significant” with a bright-line threshold, so companies need to evaluate significance using both quantitative and qualitative factors relative to each segment’s results. An expense category that is immaterial at the consolidated level might still be significant for a smaller segment.
The standard also captures expenses that are “easily computed” from information provided to the CODM, not just those handed to the CODM in a pre-formatted report. If the CODM receives cost of sales as a percentage of revenue, the actual dollar amount of cost of sales is easily computed and must be disclosed. That closes a loophole where companies could argue that the CODM technically did not receive the number in the exact form required.
Other Segment Items
After disclosing significant expenses, companies must also show an “other segment items” amount, which is the difference between segment revenue, the disclosed significant expenses, and the reported measure of segment profit or loss. This residual captures everything falling between the identified expense lines and the bottom line. Companies must provide a qualitative description of what makes up that amount.
Interim Reporting
Before ASU 2023-07, interim financial statements required limited segment data. Now all reportable segment profit-or-loss disclosures, including the new significant expense and other segment items requirements, must appear in condensed interim financial statements. Companies must also provide reconciliations of total reportable segment profit or loss to consolidated income before taxes and discontinued operations in each interim period. The only items excluded from interim reporting are general background pieces like the CODM’s title and the factors used to identify reportable segments.
The CODM’s Measure Controls the Reported Number
The CODM often evaluates segment performance using measures that do not line up perfectly with GAAP. A CODM might review segment operating income that excludes certain corporate allocations or includes non-standard adjustments. Under ASC 280, the segment profit or loss measure reported to investors must be the measure the CODM actually uses, even if it departs from GAAP conventions at the consolidated level. That is by design: the management approach prioritizes real internal decision-making data over GAAP conformity at the segment level.
The SEC draws a clear line here. Segment profit or loss measures disclosed in conformity with ASC 280 are not considered non-GAAP financial measures, even if they include or exclude items that would make them non-GAAP in other contexts. However, if a company adjusts its segment measure beyond what the CODM actually reviews, that adjusted figure becomes a non-GAAP measure subject to all the usual Regulation G and Regulation S-K requirements. Presenting a total of all segments’ profit or loss outside the required ASC 280 reconciliation footnote is also treated as a non-GAAP presentation.2U.S. Securities and Exchange Commission. Non-GAAP Financial Measures The safest approach is to report exactly what the CODM sees, and nothing more.
What Goes Wrong When the CODM Is Misidentified
Segment reporting is one of the SEC staff’s perennial focus areas in comment letters. When the staff questions a company’s segment structure, the inquiry typically starts with how the CODM was identified, then moves to whether the operating segments match the internal reporting structure, and finally examines whether aggregation was applied properly. Companies should expect the staff to compare segment disclosures against other public information: earnings calls, investor day presentations, press releases, and organizational charts posted on corporate websites.
The consequences extend beyond the segment footnote. Under ASC 350-20, goodwill is tested for impairment at the reporting unit level, and reporting units are identified as either operating segments or one level below operating segments. If a company has misidentified its operating segments, it may have also misidentified its reporting units, potentially leading to improper goodwill impairment testing and, in serious cases, the need to restate prior financial statements. That chain reaction, from a CODM identification error to a goodwill restatement, is the kind of cascading problem that draws enforcement attention.