FASB’s New Guidance on Disaggregation of Income Statement Expenses

Many public business entities (PBEs) use broad expense categories like “cost of goods sold” or “selling, general & administrative expenses” when reporting financial results. The reporting lines typically combine multiple cost components, often making it difficult for investors and stakeholders to see the composition of the amounts reported. Reporting expense information in broad categories with lack of detail can limit transparency and comparability across companies.

To help investors and other stakeholders better understand operating results and comparability to other entities, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2024-03 in November 2024. The ASU requires PBEs to disclose, in tabular format, disaggregated information in the notes to financial statements on interim and annual bases, including amounts of:

• Purchases of inventory
• Employee compensation
• Depreciation
• Intangible asset amortization
• Depreciation, depletion and amortization for oil- and gas-producing activities companies or other depletion-related expense amounts

Key Requirements of the ASU:

• The ASU applies to all PBEs and does not apply to private companies, not-for-profits or employee benefit plans.
• The ASU uses the term “relevant expense caption,” which is an expense caption presented in continuing operations and includes any of the five categories above.
• The reporting entity must include any amounts currently required to be disclosed under GAAP in the same disclosure as the other disaggregation requirements.
• Qualitative disclosures are needed to describe amounts remaining in relevant expense captions for those items not separately disaggregated quantitatively.
• The reporting entity must disclose the total amount of selling expenses, with an entity’s definition of selling expenses disclosed in its annual filings.
• The ASU’s amendments are effective for annual reporting periods beginning after December 15, 2026, and for interim periods beginning after December 15, 2027. Early adoption is permitted.

Why This ASU Matters

Implementing the requirements of the ASU will greatly improve transparency and help investors and other stakeholders with analyzing comparisons across companies and industries. This should also enable better decision-making by giving a more complete picture of the financial results.

What should you be doing to prepare for implementation?

• Financial applications: Update financial applications to be sure you can capture and report the expense information required by the ASU. If necessary, update the chart of accounts to ensure completeness of the financial results.
• Estimation methodologies: Evaluate the need to update your estimation procedures to meet the ASU’s disclosure requirements.
• Accounting policies and controls: Update accounting policies, procedures and related internal controls to ensure the accounting team and other process owners are trained. This will help ensure processes and controls are performed effectively, and there is completeness and accuracy of the disclosure information.
• Coordination with auditors: Coordinate your implementation plan and challenges with your external auditors early to identify potential issues and milestone deadlines.
• Consider illustrative examples: Read the examples contained within ASU 2024-03, which provide illustrations of required disclosures for manufacturing and service entities.

We’re Here to Help

Weaver welcomes any questions you have on the ASU or other related topics. Our team is here to collaborate with you and help ensure you are meeting the reporting requirements seamlessly. Contact us today.

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