FASB issues final guidance on disaggregated expense disclosures

ARTICLE | November 15, 2024

Authored by RSM US LLP

In response to long-standing investor requests for greater disaggregated income statement information, the Financial Accounting Standards Board (FASB or Board) recently issued Accounting Standards Update (ASU) 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (ASU 2024-03). ASU 2024-03 will require public business entities to disclose, on an annual and interim basis, disaggregated information about certain income statement expense line items. The FASB believes that the enhanced disclosure requirements will provide investors with the information needed to allow them to:

• Better understand the components of an entity’s expenses,
• More accurately forecast expenses, and
• Better assess the entity’s prospects for future cash flows.

The guidance in ASU 2024-03 applies only to public business entities and does not change any existing presentation or recognition guidance under U.S. generally accepted accounting principles (GAAP).

Main provisions

At each interim and annual reporting period, public business entities will be required to disclose in the notes to their financial statements a table containing the amounts of each of the following expense categories included in each “relevant expense caption” presented on their income statement:

• Purchases of inventory, representing amounts within the scope of Topic 330, Inventory, or an Industry Subtopic in Topic 330, with exceptions for amounts recognized from business combinations, joint venture formation and the initial consolidation of a variable interest entity that is not a business combination
• Employee compensation, based on the Topic 718, Compensation – Stock Compensation, definition of an employee and representing major types of consideration provided to employees in exchange for services
• Depreciation, representing depreciation expense consistent with amounts disclosed under Topic 360, Property, Plant and Equipment
• Intangible asset amortization, representing intangible asset amortization consistent with amounts disclosed under Subtopic 350-30, General Intangibles – Goodwill and Other
• Depreciation, depletion and amortization of capitalized acquisition, exploration, and development costs recognized as part of oil-and-gas producing activities

A relevant expense caption is an expense line item presented on the face of the income statement within continuing operations that contains any of the expense categories listed above. Expenses within a relevant expense caption that do not meet the definition of any of those expense categories are required to be presented in the “other items” category within the disaggregated expense table for the applicable relevant expense caption.

ASU 2024-03 allows two acceptable bases for disclosing the disaggregation of a relevant expense caption that contains expense amounts related to inventory purchases (i.e., the cost-incurred and expense-incurred bases). If an entity elects to disclose the information on a cost-incurred basis, the difference between the inventory balances at the beginning and end of the reporting period is required to be presented as a separate reconciling line item within the disaggregated expense table.

In addition to the tabular disaggregation requirements, a public business entity will also be required to disclose the following:

• A qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively (i.e., the “other items” category)
• The total amount of selling expenses and, in annual reporting periods, its definition of selling expenses

ASU 2024-03 requires certain amounts already disclosed under existing U.S. GAAP to also be disclosed as a separate category in the disaggregated expense table(s) if those amounts are recognized in a relevant expense caption.

ASU 2024-03 contains several practical expedients, including the use of estimates or other methods that produce a reasonable approximation of amounts required to be disclosed, and implementation guidance to assist preparers with their implementation of the new disclosure requirements.

Effective date and transition

The amendments in ASU 2024-03 are effective for annual reporting periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted.

Entities may apply the new disclosure requirements either prospectively to financial statements issued for reporting periods after the effective date of ASU 2024-03 or retrospectively to any or all prior periods presented in the financial statements.