FASB Releases Standard to Enhance Income Statement Expense Disclosures

The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) aimed at enhancing financial transparency by mandating that public companies disclose additional information on specific expenses in their interim and annual financial statement notes. This update responds to investor feedback, highlighting the need for greater detail in expense reporting to better inform financial analysis.

“This project was among the highest-priority initiatives identified by investors during our 2021 agenda consultation,” remarked FASB Chair Richard R. Jones. “Investors emphasized that detailed expense information is essential for assessing an entity’s performance, and we believe this standard offers a practical solution to provide that level of detail.”

Feedback gathered during FASB’s 2021 agenda consultation reinforced that expense information is crucial for evaluating a company’s financial health, forecasting cash flows, and making comparisons over time or across companies. Investors indicated that a more granular breakdown of expenses would enable a clearer view of a company’s cost structure and cash flow potential.

The ASU reflects this feedback by requiring public companies to disclose specific details on certain costs and expenses within the notes to financial statements at each interim and annual reporting period. Key requirements include:

• Disclosing amounts for:
  • (a) inventory purchases,
  • (b) employee compensation,
  • (c) depreciation,
  • (d) intangible asset amortization, and
  • (e) depreciation, depletion, and amortization related to oil- and gas-producing activities (or other depletion expenses) within each relevant expense caption.

• Including amounts already mandated under existing generally accepted accounting principles (GAAP) alongside the new disaggregation requirements.
• Providing a qualitative description of amounts within expense captions that are not separately disaggregated quantitatively.
• Disclosing the total amount of selling expenses and, for annual reports, the entity’s definition of selling expenses.

The amendments outlined in the ASU will take effect for annual reporting periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted.