The Financial Accounting Standards Board (FASB) today published an Accounting Standards Update (ASU) that FASB says improves financial reporting and responds to investor input by requiring public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the tabular-style notes to financial statements.

It represents the final formal step in the years-long project – known as the disaggregation of income statement expenses (DISE) –  by the US accounting standard setter

The amendments in the ASU are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027, but early adoption is permitted.

Disclosure requirements

When queried, investors have stated that expense information is critically important in understanding a company’s performance, assessing its prospects for future cash flows, and comparing its performance over time and with that of other companies.

They indicated that more granular expense information would assist them in better understanding an entity’s cost structure and forecasting future cash flows.

FASB strove to create this latest ASU to address this investor feedback by requiring public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period.

Specifically, they will be required to:

• disclose the amounts of (a) purchases of inventory; (b) employee compensation; (c) depreciation; (d) intangible asset amortization; and (e) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities (or other amounts of depletion expense) included in each relevant expense caption;
• include certain amounts that are already required to be disclosed under current generally accepted accounting principles in the same disclosure as the other disaggregation requirements;
• disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively;
• disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.

Detailed income statements

The expense rules represent what may be one of the biggest changes for the income statement when it comes to disaggregation, FASB member Fred Cannon said in an interview. 

“In my view this one is really a key pillar in that effort that’s been going on for 20 years,” Cannon said. “When I think about it broadly it’s a move to give investors much more disaggregation and a better understanding of the income statement cash flows.”  

Cannon, a former analyst, noted that the FASB’s recent interest in providing more detailed income statement disclosures comes as income statements have become increasingly important for evaluating information-age companies like tech firms, while the balance sheet data aligns more with industrial companies. 

Prior to the new accounting standards update, the information provided in income statement expense disclosures was largely provided piecemeal through various accounting and securities rules.

Now, under the updated standards, companies will break out details about the relevant expense line items in their income statement, such as purchases of inventory, employee compensation, and depreciation.