Frequently Asked Questions About ASU 2024-03 on Disaggregation of Income Statement Expenses (DISE)
This publication was updated on September 30,
2026, to address additional frequently asked questions related
to ASU
2024-03.1 The dates of new and amended FAQs released since the
publication’s initial issuance are marked in red boldface
italic date in brackets. As a result, certain
FAQ numbers have changed from prior versions.
Background
On November 4, 2024, the FASB issued ASU 2024-03 (codified as
ASC
220-402), which requires disaggregated disclosure of income statement expenses for
public business entities (PBEs). The ASU does not change the expense captions an
entity presents on the face of the income statement or the recognition and
measurement principles of other GAAP standards; rather, it requires
disaggregation of certain expense captions into specified categories in
disclosures within the footnotes to the financial statements.
An expense caption is
considered relevant and therefore subject to disaggregation if it is presented
on the face of the income statement within continuing operations and includes
any of the following natural expense categories: (1) purchases of inventory; (2)
employee compensation; (3) depreciation; (4) intangible asset amortization; and
(5) depreciation, depletion, and amortization (DD&A) recognized as part of
oil- and gas-producing activities or other types of depletion expenses. Entities
will need to disaggregate relevant expense captions into these five natural
expense categories in a tabular presentation. The tabular disclosure for each
relevant expense caption would also include certain other expenses, gains, or
losses that must be disclosed under existing U.S. GAAP and expense
reimbursements, when applicable. The graphic below illustrates the components of
the disaggregated tabular disclosures of a relevant expense caption.
ASU 2024-03 does not change or remove existing expense
disclosure requirements; however, it may affect where that information appears
in the footnotes to the financial statements.
The ASU’s requirements do not apply to immaterial items, and entities are allowed
to use accounting estimates or other methods that reasonably approximate the
required disclosure amounts.
The ASU is effective for all PBEs for fiscal years beginning
after December 15, 2026, and interim periods within fiscal years beginning after
December 15, 2027.3 Early adoption is permitted. PBEs may apply the ASU prospectively or
retrospectively.
This Accounting Spotlight addresses frequently asked
questions (FAQs) about the disclosure requirements of ASU 2024-03. References to
the applicable guidance, including specific paragraph citations from the ASU and
its Background Information and Basis for Conclusions, are provided at the end of
each FAQ answer.
For a comprehensive overview of ASU 2024-03, see
Deloitte’s November 8, 2024 (updated January 21, 2025),
Heads
Up.
FAQs Related to the Accounting and Reporting Requirements of ASU 2024-03
Scope
FAQ 1
Question
Which entities are within the scope of ASU 2024-03?
Answer
The scope of ASU 2024-03 encompasses all PBEs,
including those whose financial statements are filed with or
furnished to the SEC (e.g., broker-dealers in securities, voluntary
filers) and those preparing for the sale of securities in a public
market (e.g., in an initial public offering).
The scope of ASU 2024-03 includes the following entities, as is
consistent with the definition of PBEs:
- Entities that only have debt securities trading in a public market and those that have “issued, or [are] conduit bond obligor[s] for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market.”
- Broker-dealers under ASC 940.
- Investment companies under ASC 946.
- Registered insurance separate accounts under ASC 944.
The scope of ASU 2024-03, as noted in ASC 220-40-15-3, does
not include the following:
References: ASC 220-40-15-2 and 15-3
FAQ 2
Question
Are private companies required to comply with ASU 2024-03?
Answer
It depends. ASU 2024-03 generally does not apply to private
companies. However, a private company would meet the definition of a
PBE, and would be required to comply with ASU 2024-03, if any of the
following conditions are met:
- The company is in the process of going public through an initial public offering.
- The company’s financial statements are included in another entity’s SEC filing (e.g., under SEC Regulation S-X, Rule 3-05,4 Rule 3-09,5 or Rule 3-146).
- The company is considered a to-be-acquired business or commonly referred to as a target in a Form S-4 or proxy statement or special-purpose acquisition company (SPAC) transaction.
References: ASC 220-40-15-2 and 15-3
FAQ 3
Question
Will the expense captions an entity presents on the face of the
income statement change after the adoption of ASU 2024-03?
Answer
No. ASU 2024-03 does not require entities to change
how expenses are presented or expense captions are reported on the
face of the income statement. Instead, the ASU requires entities to
disaggregate relevant expense captions within a tabular format in
the footnotes to the financial statements (see FAQ 4).
Further, the SEC has addressed questions related to
the interaction of ASU 2024-03 with Regulation S-X, Rule 5-03.7 The SEC noted that Rule 5-03 includes guidance on the captions
required on the face of the income statement, while the ASU imposes
distinct footnote disclosure requirements related to the
disaggregation of certain of those captions. The SEC has emphasized
that these footnote disclosure requirements do not replace the
presentation requirements in Rule 5-03.
References: ASC 220-40-50-6 and paragraph BC125
of ASU 2024-03
Relevant Expense Captions
FAQ 4
Question
How does an entity determine whether an expense caption is
relevant?
Answer
An expense caption is considered “relevant” (referred to as a
“relevant expense caption”) if the expense caption within continuing
operations includes one or more of the following natural expense
categories: (1) purchases of inventory, (2) employee compensation,
(3) depreciation, (4) intangible asset amortization, and (5)
DD&A recognized as part of oil- and gas-producing activities or
other depletion expenses.
Amortization of finance lease ROU assets and of
leasehold improvements should be classified as either depreciation
or intangible asset amortization. Expense captions including these
amounts are considered relevant expense captions. See FAQ 31 for
further discussion.
References: ASC 220-40-50-10 and ASC
220-40-50-12
FAQ 5
Question
Could expenses within discontinued operations be considered
relevant?
Answer
No. As noted in ASC 220-40-50-12, ASU 2024-03 only applies to expense
captions within continuing operations.
Reference: ASC 220-40-50-12
FAQ 6
[Added
September 30, 2026]
Question
Is an entity that presents discontinued operations in accordance with ASC
205-20 required to retrospectively recast the prior-period DISE
disclosures?
Answer
Yes. The tabular disaggregation disclosure and selling expense disclosure
requirements apply only to expenses in continuing operations. When a
disposition meets the criteria for discontinued-operations reporting,
the results of its operations are reclassified to discontinued
operations in the statement of operations, retrospectively, for all
periods presented. The DISE footnote disclosures for each period should
be recast for each relevant expense caption to reflect only amounts in
continuing operations presented on the face of the income statement. In
addition, an entity’s selling expense disclosures may also need to be
recast.
Example 1
Company A is a sporting goods seller that has
historically sold soccer, basketball, and football
equipment (each a component). Cost of goods sold
(COGS) is a relevant expense caption, andtotal
prior-period COGS is $10,000. For purposes of the
DISE footnote, A’s tabular disclosure for COGS
includes the following expense types identified in
accordance withASC 220-40-50-6 and ASC
220-40-50-21: purchases of inventory, employee
compensation, amortization, and impairment loss of
long-lived assets classified as held and used.
In the current year, A decides
to exit the soccer equipment business, and the
planned sale meets the criteria in ASC 205-20 to
be presented within discontinued operations. The
total amounts of COGS presented on the face of the
income statement are recast to exclude the
expenses related to the soccer equipment business
to reflect the discontinued operation. The COGS
related to the soccer equipment business is
$2,500, which will be presented as a component of
income or loss from discontinued operations on the
face of the income statement. Therefore, the
recast prior-year COGS reflected on the face of
the income statement is $7,500. Company A
determines that $2,500 of soccer-related COGS
consists of $1,000 of purchases of inventory,
$1,400 of employee compensation, and $100 of
amortization. Therefore, A recasts the tabular
disaggregation for continuing operations in the
manner shown in the table below. The impairment of
long-lived assets is not related to the soccer
business and is not recast.
Entities may need to use judgment to determine
the amounts of each expense type that must be
recast as a result of the presentation of
discontinued operations.
References: ASC 220-40-50-2, ASC 220-40-50-6, ASC 220-40-50-12, and
ASC 220-40-50-35
FAQ 7
Question
Could an entity’s share of earnings or losses from investments
accounted for under the equity method be considered a relevant
expense?
Answer
No. ASC 220-40-50-13 notes that “[a]n entity’s
share of earnings or losses from investments accounted for under the
equity method . . . is not a relevant expense caption” for which
disaggregation is required. Further, an entity is not required to
disaggregate summarized information of equity method investments’
results of operations under ASC 323-10-50-3(c).
Reference: ASC 220-40-50-13
FAQ 8
Question
Is an expense caption that consists entirely of one required natural
expense category subject to disaggregation?
Answer
No. An expense caption that consists entirely of one of the required
natural expense categories will not be subject to the new
disaggregation guidance.
For example, assume that Entity X has an expense caption consisting
entirely of depreciation expense on the face of the income
statement. That expense caption would not need to be further
disaggregated. However, if the natural expense caption includes more
than one of the required expense categories, further disaggregation
would be required. Consider an additional example in which Entity Y
has an expense caption consisting of depreciation and intangible
asset amortization. In that case, Y also would need to further
disaggregate the expense caption to separately disclose depreciation
and intangible asset amortization in the footnotes.
Reference: ASC 220-40-50-12
Purchases of Inventory
FAQ 9
[Amended
September 30, 2026]
Question
What types of costs should be included in purchases of inventory?
Answer
Amounts disclosed in purchases of inventory should include costs of
acquiring raw materials and other externally purchased inputs that
are within the scope of ASC 330 and, as applicable, ASC subtopics
that provide industry-specific guidance on inventory (e.g., ASC
908-330).
ASU 2024-03 does not define purchases of inventory
or include specific guidance on the presentation of all costs within
the scope of ASC 330. Not all inventoriable costs under ASC 330 may
qualify as purchases of inventory. For example, purchases of
inventory generally include the cost of raw materials, finished
goods, and other externally purchased inputs but typically would not
include direct employee labor costs, depreciation, amortization, and
other overhead even if such costs are capitalized under ASC 330. The
ASU does not supersede or otherwise amend the scope, recognition, or
measurement guidance in ASC 330 or other Codification topics.
Therefore, entities should follow their existing accounting
policies, and may sometimes need to use judgment, to determine which
inventoriable costs within the scope of ASC 330 qualify as purchases
of inventory. See FAQs 10 through 15 for additional considerations. In
addition, see FAQ 22 for
discussion of the presentation of foreign currency translation
adjustments in “other adjustments and reconciling items” when the
cost-incurred basis is applied.
References: ASC 220-40-50-7 and paragraph BC78 of ASU
2024-03
FAQ 10
[Amended
September 30, 2026]
Question
Should costs incurred to acquire materials (e.g.,
tariffs, taxes, or transportation) be included in purchases of
inventory?
Answer
It depends. External costs that are directly related to the
acquisition of materials (those incurred to bring a material to its
existing condition and location) may be included in purchases of
inventory, provided that these costs are capitalizable under ASC
330. Entities should follow their existing ASC 330 inventory
capitalization policies when determining whether a cost is
capitalizable. Alternative views may be acceptable. An entity should
consistently apply its approach to all capitalizable acquisition
costs.
An entity may need to use judgment in evaluating whether certain
external capitalizable costs other than the cost of the underlying
materials should be included in purchases of inventory. In making
this determination, an entity should consider the nature of the
cost. Some costs may be more closely associated with the acquisition
of inventory and bringing it to the condition and location necessary
for sale, while other costs may be more closely associated with the
production or conversion of inventory into work in process or a
finished good.
For example, an entity in the retail industry may have a policy of
capitalizing external (third-party) transportation costs to move
goods for resale from the retail entity’s warehouse or distribution
center to its retail stores. Such costs may reasonably represent
costs incurred to bring finished goods inventory to the location
required for sale; therefore, the entity may include such costs in
purchases of inventory.
Entities in other industries involving manufacturing should evaluate
whether external transportation costs — such as inbound freight and
transportation between warehousing, distribution, and manufacturing
facilities — should be considered purchases of inventory. If such
costs are capitalized to inventory under ASC 330 in accordance with
an entity’s existing inventory capitalization policies and are
determined to be acquisition costs of externally purchased inputs,
it may be acceptable to include those amounts in purchases of
inventory. An entity should apply its approach to such a
determination consistently.
Similarly, an entity may need to use judgment when
evaluating whether vendor rebates or discounts should be included in
purchases of inventory. We believe that it is acceptable to present
— within purchases of inventory — rebates, discounts, or other
consideration received from vendors that is accounted for as a
reduction of a good’s purchase price.
References: ASC 220-40-50-7 and paragraph BC78 of ASU
2024-03
FAQ 11
[Amended
September 30, 2026]
Question
Should all costs that are referred to as “inventory” be included in
purchases of inventory?
Answer
No. Purchases of inventory include only amounts
within the scope of ASC 330 and, as applicable, ASC subtopics that
provide industry-specific guidance on inventory, such as ASC
908-330. Costs that are colloquially referred to as “inventory” but
that are not within the scope of ASC 330 (e.g., film costs or costs
accumulated for long-term construction contracts) should not be
included in purchases of inventory.
An entity may need to use judgment to determine the scope of material
purchases in certain arrangements.
For example, in some industries, entities commonly enter into
contracts with customers within the scope of ASC 606 for which
revenue is recognized over time, and certain materials purchased to
fulfill those contracts may be immediately expensed. Upon adoption
of ASU 2024-03, companies will need to consider the nature of their
revenue contracts and the materials purchased to fulfill those
contracts. Specifically, entities should evaluate whether the
materials purchased, even if immediately expensed, would be
inventoriable (i.e., capitalizable under ASC 330) or whether,
depending on the nature of the contracts and corresponding materials
purchased, they would not be considered inventory. Entities should
consider their facts and circumstances and contract terms when
determining the presentation of such material costs and should apply
their conclusions consistently to similar types of costs.
See Deloitte’s November 12, 2025, Aerospace & Defense Spotlight and
Engineering & Construction
Spotlight for additional considerations
related to the aerospace and defense and engineering and
construction industries.
In some industries (e.g., life sciences), an entity may be required to
use judgment to determine whether costs incurred to acquire or
manufacture a product before FDA approval (prelaunch inventory)
should be capitalized as inventory or expensed as incurred as
R&D cost. Such entities should follow their existing accounting
policies in making this determination and should present costs
within their DISE disclosures accordingly. Costs that are within the
scope of ASC 330 (and qualify as purchases of inventory) are
presented in the purchases of inventory category within the
disaggregation of the relevant expense caption. Costs that are not
within the scope of ASC 330, such as those that are expensed in
accordance with ASC 730, do not qualify as purchases of inventory
and should be presented in the applicable natural expense category
(e.g., employee compensation, depreciation, other) within the
disaggregation of the relevant expense caption (e.g., R&D
expense), as applicable. See Section 2.2.3 of Deloitte’s Life Sciences Industry Accounting
Guide for considerations related to the
capitalization of prelaunch inventory.
Also see Section 12.14.3.1 of Deloitte’s Life Sciences Industry Accounting Guide
for additional considerations related to purchases of inventory for
entities in the life sciences industry.
References: ASC 220-40-50-7 and paragraph BC76
of ASU 2024-03
FAQ 12
[Amended
September 30, 2026]
Question
How should an entity present costs paid to a contract manufacturer in its
DISE disclosures?
Answer
It depends. ASU 2024-03 does not define purchases of inventory or provide
specific guidance on the presentation of costs incurred under
third-party contract manufacturing or tolling arrangements.
When an arrangement does not contain a lease and the
reporting entity receives a finished or substantially finished product
that is capitalized to inventory in accordance with ASC 330, an entity
may consider either (1) all contract manufacturing costs as purchases of
inventory or (2) the nature of the cost incurred by the contract
manufacturer.
An entity may reasonably conclude that the cost is an inventory
acquisition cost, in which case the entire amount paid to the contract
manufacturer would be presented as a purchase of inventory.
Alternatively, an entity may reasonably conclude that
the nature of the cost includes both an inventory acquisition component
(for materials) and a service component, in which case the portion of
the cost associated with the materials would be presented in purchases
of inventory and the portion associated with the manufacturing or
assembly services would be presented in “other.” If the material and
service cost components are not separately identified in the third-party
invoice, an entity may use estimates to reasonably approximate the
amounts presented in each category.
The approach taken should be applied consistently to similar
arrangements.
References: ASC 220-40-50-7, ASC 330-10-30-1, and paragraph BC78 of
ASU 2024-03
FAQ 13
Question
Should purchases of inventory include amounts recognized as part of a
business combination, joint venture formation, or initial
consolidation of a variable interest entity that is not a business
combination?
Answer
No. Purchases of inventory should not include
inventory acquired through a business combination, a joint venture
formation, or the initial consolidation of a variable interest
entity that is not a business. These amounts should be included in
other items (see FAQ
36) or voluntarily as a separate category in a tabular
disclosure.
Reference: ASC 220-40-50-7
FAQ 14
Question
Should inventory acquired in an asset acquisition be included in
purchases of inventory?
Answer
Yes. Purchases of inventory include inventory
acquired in an asset acquisition, except for acquisitions of a
variable interest entity (see FAQ 13).
References: ASC 220-40-50-7 and paragraph BC77 of ASU
2024-03
FAQ 15
Question
Are intercompany purchases included in purchases of inventory in the
consolidated financial statements?
Answer
No. Purchases of inventory should include only externally purchased
inputs, not intercompany purchases.
References: ASC 220-40-50-7 and paragraph BC78 of ASU
2024-03
FAQ 16
Question
What does “substantially all” mean in the context of the practical
expedient related to purchases of inventory?
Answer
Although ASU 2024-03 does not define the term “substantially all,”
paragraph BC80 of the ASU notes that use of this term should be
consistent with that in other GAAP (e.g., ASC 810, ASC 606, ASC
842), under which it is generally interpreted as 90 percent or
more.
References: ASC 220-40-50-19 and paragraph BC80 of ASU
2024-03
Relevant Expense Captions That Include Inventory Within the Scope of ASC 330
FAQ 17
Question
What is the difference between the cost-incurred
basis and the expense-incurred basis?
Answer
Under ASU 2024-03, there are two acceptable bases
for presenting disaggregated disclosures of a relevant expense
caption containing recorded amounts that are within the scope of ASC
330: a cost-incurred basis and an expense-incurred basis.
Amounts disclosed under the cost-incurred basis
include costs incurred that were capitalized to inventory in
accordance with ASC 330 during the current reporting period and
costs incurred that were directly expensed during the current
reporting period. Under this basis, to reconcile the costs incurred
to the total relevant expense caption, an entity separately
discloses (1) changes in inventories and (2) other adjustments and
reconciling items. Changes in inventories represent differences in
inventory included on the balance sheet between the end of the prior
reporting period and the current reporting period. Other adjustments
and reconciling items represent other amounts needed to reconcile
costs incurred to expenses recognized. See FAQ 22 for additional
considerations related to these reconciling items.
Amounts disclosed under the expense-incurred basis
include expenses related to the derecognition of inventory that were
previously capitalized in accordance with ASC 330 and any costs
incurred that were directly expensed during the current reporting
period.
ASU 2024-03 notes that “[i]n many cases, an
entity’s chosen basis will result in disclosed amounts that are
different than if the entity had chosen the alternative basis.”
The example below illustrates the application of
the cost-incurred and expense-incurred bases and how the two bases
could result in different disclosed amounts for certain natural
expense categories, including purchases of inventory. For
simplicity, this example only addresses purchases of materials (it
does not include amounts for other required expense categories and
other items) and excludes considerations related to inventory cost
flow assumptions (e.g., LIFO vs. FIFO8) and costing methods. Appendix B of Deloitte’s
November 8, 2024 (updated January 21, 2025), Heads
Up includes a more detailed example illustrating
the two different methods.
Example 2
Entity A has identified COGS
as a relevant expense caption because it includes
expense amounts related to the purchases of
inventory recorded in accordance with ASC 330. In
the fiscal year, the entity purchased $100 of
materials but only sold $80 of materials. The
total amount of COGS recorded in the income
statement for the fiscal year is $80.
Under the cost-incurred
basis, Entity A would disclose:
Under the expense-incurred
basis, A would disclose:
While entities can choose the basis to use in
complying with the ASU’s disclosure requirements, we believe that
the expense-incurred approach may be challenging for many entities,
especially entities that use the LIFO method and the retail
inventory method or that use standard costing or processes that
involve completed-cost methods.
The FASB discusses some of these potential
challenges in the Background Information and Basis for Conclusions
of ASU 2024-03. Specifically, paragraph BC67 of the ASU highlights
potential challenges associated with retrospective identification of
costs capitalized as part of inventory and discusses the use of
standard costing, cost flow assumptions, and aggregation of
different natural costs in the calculation of variances as factors
that can complicate the disaggregation of inventory-related cost
information by nature. Paragraphs BC72 and BC73 further discuss
complexities associated with the expense-incurred basis and state,
in part:
BC72. . . . The Board concluded that
allowing the cost-incurred basis responds to preparers’
feedback that indicated that it may be costly and difficult,
or potentially impracticable, for many entities to
retrospectively identify by required expense category costs
capitalized as part of inventory that is sold in the current
reporting period. . . .
BC73. However, for entities applying an
inventory costing methodology other than the first-in,
first-out method (such as the last-in, first-out method or
the average-cost method), the Board observed that applying
an expense-incurred approach may be operationally
challenging or potentially impracticable. For example, if an
entity applies the last-in, first-out costing methodology
and a liquidation of a significantly aged layer occurs, then
the entity may not have sufficient information (for example,
the nature of expense when the cost was initially incurred)
to determine the amount to be included in each required
expense category.
As entities contemplate which basis to choose when
disclosing purchases of inventory,9 they may need to consider the availability of information
related to determining the amounts in this expense category. Such
considerations would include potential limitations with IT systems
such as inventory management systems, the use of data warehouses,
the entity’s inventory costing method, costing variances, and
whether third parties (e.g., third-party warehouses, inventory on
consignment) are involved with the management of inventory.
See FAQ 18 for additional considerations related to the use
of standard costing.
References: ASC 220-40-50-31 and paragraphs BC67
and BC69–BC74 of ASU 2024-03
FAQ 18
Question
When a standard cost approach is used, are cost
variances included in the natural expense categories to which they
are related (e.g., purchases of inventory, employee compensation,
and depreciation)?
Answer
Yes. The tabular disaggregation into the natural
expense categories should reflect actual costs, including standard
costs and the variances between actual costs and standard costs for
each natural expense category. For example, the material purchase
price (standard plus variance) should be presented in purchases of
inventory while labor and overhead manufacturing costs (standard
plus variance) should be presented in employee compensation,
depreciation, amortization, and other categories, as applicable.
This concept applies regardless of the basis
elected to disclose the disaggregation of a relevant expense caption
that contains expense amounts related to inventory within the scope
of ASC 330. For example, under the cost-incurred basis, purchases of
inventory consist of material purchases made during the period at
actual cost (i.e., raw materials purchased at standard cost and
current-period purchase price variances incurred). Under the
expense-incurred basis, purchases of inventory consist of the actual
material costs for inventory sold during the current period,
including any related cost variances recognized as expense in the
period. This same concept applies to other relevant expense
categories (i.e., employee compensation, depreciation, and other
COGS) and other variances (e.g., labor and overhead manufacturing
variances).
The calculation of variances to present in the
disclosure will depend on a company’s operational policies — for
example, whether variances are initially recognized in the income
statement, with an amount capitalized to inventory at period-end for
amounts not sold, or whether variances are initially capitalized.
Companies with cost variances may need to consider using estimates
to calculate the required disclosure amounts. For a discussion of
the use of estimates, see FAQ 42.
See Appendix B of Deloitte’s
November 8, 2024 (updated January 21, 2025), Heads
Up for a detailed illustrative example.
References: ASC 220-40-50-31 and paragraphs
BC67–BC69 of ASU 2024-03
FAQ 19
Question
How should changes in excess and obsolescence
reserve, inventory count adjustments and manufacturing spoilage
expense, and related transactions be presented in the tabular
disaggregation?
Answer
It depends. As described in FAQ 9, ASU 2024-03 does not
include specific guidance on the presentation of all expenses within
the scope of ASC 330. Therefore, an entity must use judgment to
determine the location of such items in the tabular presentation
required by the ASU.
We believe that it is acceptable to present the
change in excess and obsolescence reserve in the “changes in
inventory” reconciling item (cost-incurred basis) or to disaggregate
the amount on the basis of the natural expense category of the costs
incurred (e.g., purchases of inventory, employee compensation,
depreciation, other) (expense-incurred basis). However, multiple
presentations may be acceptable. Similar considerations may apply to
other transaction types such as inventory count adjustments and
manufacturing spoilage expense. The approach taken should be applied
consistently to all similar transaction types (e.g., excess and
obsolescence reserve, inventory count adjustments and manufacturing
spoilage expense).
For a detailed illustrative example, see Appendix B
of Deloitte’s November 8, 2024 (updated January 21, 2025), Heads
Up.
References: ASC 220-40-50-31 and 50-32
FAQ 20
Question
Does the selected basis (the cost-incurred basis or
the expense-incurred basis) for a relevant expense caption that
contains expense amounts related to inventory within the scope of
ASC 330 apply to all required natural expense categories?
Answer
Yes. The selected basis for a relevant expense
caption that contains expense amounts related to inventory within
the scope of ASC 330 must be applied consistently to all natural
expense categories listed in ASC 220-40-50-6 (purchases of
inventory, employee compensation, depreciation, amortization, and
DD&A). For example, if an entity applies the cost-incurred basis
and employee compensation is included in the relevant expense
caption, the employee compensation category in the disaggregated
expense table should include both the amounts capitalized to
inventory during the current period and any costs incurred that were
directly expensed during the current reporting period.
References: ASC 220-40-50-31 and paragraph BC69
of ASU 2024-03
FAQ 21
Question
Can an entity change its basis (the cost-incurred
basis or the expense-incurred basis) for a relevant expense caption
that contains expense amounts related to inventory?
Answer
Yes. ASU 2024-03 provides two acceptable bases for
presenting disaggregated disclosures of a relevant expense caption
that contains amounts recorded in accordance with ASC 330: a
cost-incurred basis and an expense-incurred basis. Entities can
choose the basis to use in complying with the disclosure
requirements in the ASU, and the basis for a relevant expense
caption that contains expense amounts related to inventory can be
changed (from cost-incurred to expense-incurred, or vice versa).
However, if an entity changes the basis of disclosure, prior periods
presented must be recast for comparative purposes to reflect the
current-period basis unless it is impracticable to do so. See FAQ 43 for
considerations related to recasting when the basis of disclosure is
changed.
References: ASC 220-40-50-4 and paragraph BC69
of ASU 2024-03
FAQ 22
Question
When the cost-incurred basis is applied, what
amounts are included in (1) changes in inventory and (2) other
adjustments and reconciling items?
Answer
Amounts disclosed under the cost-incurred basis
include costs incurred that were capitalized to inventory in the
current period and costs incurred that were directly expensed during
the current period. Under this basis, (1) changes in inventories and
(2) other adjustments and reconciling items are separately disclosed
to reconcile the costs incurred to the total relevant expense
caption. ASC 220-40-50-32 indicates that changes in inventories
would “equal the difference between the amount of inventory included
on the balance sheet at the end of the prior reporting period” and
that “included on the balance sheet at the end of the current
reporting period.” Other adjustments and reconciling items should
include other amounts needed to reconcile costs incurred to expenses
recognized (e.g., inventory derecognized in a deconsolidation
transaction within the scope of ASC 810, impacts of foreign currency
translation in accordance with ASC 830-30).
References: ASC 220-40-50-32 and 50-33 and
paragraphs BC70–BC71 of ASU 2024-03
Employee Compensation
FAQ 23
Question
Does employee compensation include compensation for
any type of employee?
Answer
It depends. The definition of an “employee” in the ASC master
glossary, as amended by ASU 2024-03, is aligned with that in ASC
718. If an entity has workers that do not meet the definition of an
“employee” under ASC 718, the related compensation should not be
included in the employee compensation category.
The ASC master glossary defines an “employee”
(second definition), as amended by ASU 2024-03, as follows:
ASC Master Glossary
Employee
An individual over whom a
reporting entity exercises or has the right to
exercise sufficient control to establish an
employer-employee relationship based on common law
as illustrated in case law and currently under
U.S. Internal Revenue Service (IRS) Revenue Ruling
87-41. A reporting entity based in a foreign
jurisdiction would determine whether an
employee-employer relationship exists based on the
pertinent laws of that jurisdiction. Accordingly,
an individual meets the definition of an employee
if the reporting entity consistently represents
that individual to be an employee under common
law. The definition of an employee for payroll tax
purposes under the U.S. Internal Revenue Code
includes common law employees. Accordingly, a
reporting entity that classifies an individual
potentially subject to U.S. payroll taxes as an
employee also must represent that individual as an
employee for payroll tax purposes (unless the
individual is a leased employee as described
below). An individual that meets the definition of
an employee includes, but is not limited to, a
full-time, part-time, temporary, or seasonal
employee. An individual does not meet the
definition of an employee solely because the
reporting entity represents that individual as an
employee for some, but not all, purposes. For
example, a requirement or decision to classify an
individual as an employee for U.S. payroll tax
purposes does not, by itself, indicate that the
individual is an employee because the individual
also must be an employee of the reporting entity
under common law.
A leased individual is deemed
to be an employee of the lessee if all of the
following requirements are met:
- The leased individual qualifies as a common law employee of the lessee, and the lessor is contractually required to remit payroll taxes on the compensation paid to the leased individual for the services provided to the lessee.
- The lessor and lessee agree
in writing to all of the following conditions
related to the leased individual:
- The lessee has the exclusive right to grant compensation to the individual for the employee service to the lessee.
- The lessee has a right to hire, fire, and control the activities of the individual. (The lessor also may have that right.)
- The lessee has the exclusive right to determine the economic value of the services performed by the individual (including wages and the number of units and value of stock compensation granted).
- The individual has the ability to participate in the lessee’s employee benefit plans, if any, on the same basis as other comparable employees of the lessee.
- The lessee agrees to and remits to the lessor funds sufficient to cover the complete compensation, including all payroll taxes, of the individual on or before a contractually agreed upon date or dates.
A nonemployee director does
not satisfy this definition of employee.
Nevertheless, nonemployee directors acting in
their role as members of a board of directors are
treated as employees if those directors were
elected by the employer’s shareholders or
appointed to a board position that will be filled
by shareholder election when the existing term
expires. However, that requirement applies only to
awards and other compensation granted to
nonemployee directors for their services as
directors. Awards granted and compensation paid to
those individuals for other services shall be
accounted for as awards and compensation to
nonemployees.
To assess whether an individual meets the
definition of an employee under IRS Ruling 87-41, an entity may
consider the criteria discussed in Section 2.2 of Deloitte’s
Roadmap Share-Based Payment Awards. Further, as
outlined in the definition above, the determination of an
employee-employer relationship for individuals based in foreign
jurisdictions should be guided by the pertinent laws of the local
jurisdiction.
References: ASC master glossary definition of “employee” (second
definition) and paragraphs BC90–BC96 of ASU 2024-03
FAQ 24
[Amended
September 30, 2026]
Question
Does employee compensation include all types of compensation
costs?
Answer
Generally, yes. Paragraph BC90 of ASU 2024-03 notes
that employee compensation “is intended to broadly capture the major
types of consideration granted or issued to employees in exchange
for services.” Employee compensation would be consistent with
compensation costs, including those described in ASC 710, ASC 712,
ASC 715, and ASC 718, as well as with the definition of employee
benefits in IAS 19.10 Employee compensation includes, but is not limited to, wages,
bonuses, social security contributions, payroll taxes, employee
benefits, and share-based compensation. The ASC master glossary
defines employee compensation (added by ASU 2024-03) as follows:
ASC Master Glossary
All forms of cash consideration (including
deferred cash compensation), share-based payment
arrangements, medical care benefits, pension
benefits, postretirement benefits, and
nonretirement postemployment benefits (including
special or contractual termination benefits) given
by an entity in exchange for service rendered by
employees or for the termination of employment.
This includes compensation cost arising from
wages, salaries, profit-sharing, bonuses, one-time
employee termination benefits, other
postemployment benefits, employee stock ownership
plans, employee share purchase plans, defined
contribution plans, multiemployer plans, and any
other compensation cost recognized in accordance
with the guidance in Topic 710 on compensation,
Topic 712 on nonretirement postemployment
benefits, Topic 715 on retirement benefits, and
Topic 718 on stock compensation. This also
includes compulsory payments paid to the general
government that confer entitlement to receive a
(contingent) future social benefit, such as
unemployment insurance benefits and supplements;
accident, injury, and sickness benefits; old-age,
disability, and survivors’ pensions; and family
allowances, reimbursements for medical and
hospital expenses, or provision of hospital or
medical services. For defined benefit plans within
the scope of Topic 715, employee compensation
includes only the service cost component of net
periodic pension cost and the service cost
component of net periodic postretirement benefit
cost.
References: ASC master glossary definitions of
“employee” (second definition) and “employee compensation” and
paragraphs BC90–BC96 of ASU 2024-03
FAQ 25
[Added
September 30, 2026]
Question
If a reporting entity recognizes costs associated with employees of
another entity (e.g., compensation costs allocated to the reporting
entity or compensation costs recognized through proportionate
consolidated costs), do those costs represent employee compensation of
the reporting entity?
Answer
No. A reporting entity may enter into certain
arrangements under which costs are allocated to it from another entity
(e.g., management services agreements (MSAs) or shared-services
arrangements). These types of arrangements may be common in, but are not
limited to, the broker-dealer, insurance, and real estate industries.
The allocated costs may include compensation costs for individuals
employed by the allocating entity rather than the reporting entity.
Because the individuals are not legal employees of the reporting entity
(see FAQ 23 for the definition of
an employee), the allocated costs do not qualify as employee
compensation for the reporting entity.
Similarly, in certain industries, a reporting entity may use a
proportionate consolidation model to record its proportionate share of
costs incurred by another entity, including costs related to that
entity’s employees. For example, a nonoperator entity in the oil and gas
industry may be party to a joint operating agreement in which a separate
and unrelated operator is primarily responsible for day-to-day
administrative and production activities associated with a well and
incurs employee costs to oversee those services and the well’s ongoing
operations. The nonoperator (reporting entity) records a proportionate
share of those costs. Since the operator’s employees are not employees
of the nonoperator reporting entity, the proportionately consolidated
costs do not qualify as employee compensation for the nonoperator
reporting entity.
Accordingly, an expense caption would not be considered a relevant
expense caption solely because it contains allocated or proportionately
consolidated employee costs, given that such costs do not meet the
definition of employee compensation.
However, an entity is not precluded from voluntarily disclosing such
allocated compensation costs provided that the entity does not combine
this disclosure with disclosure of employee compensation or other
disaggregated expense amounts required by ASC 220-40-50-6, ASC
220-40-50-21 and 50-22, ASC 220-40-50-26(a), and ASC 220-40-50-28. An
entity that elects to separately disclose such allocated employee
compensation costs should consider appropriately labeling the costs to
differentiate them from direct employee compensation of the reporting
entity.
Example 3
Entity A is a holding company
with a consolidated subsidiary, Entity B, which is
an operating company that meets the definition of
a PBE (B is the reporting entity). The two
entities enter into an MSA under which A provides
certain managed services to B. According to the
MSA’s terms, A’s employees will provide services
to B in exchange for reimbursement of A’s direct
expenses (e.g., salaries expense, employee
benefits, workers’ compensation). Entity B has no
legal employees. Because the individuals
performing the services are not employed by B and
therefore do not meet the definition of an
employee in the ASC master glossary at the
reporting entity level, B would not classify those
allocated labor costs as employee compensation in
its DISE disclosures. Entity B is not precluded
from voluntarily disclosing such costs provided
that such disclosure is appropriately captioned
and clearly distinct from the employee
compensation disclosure.
References: ASC master glossary definitions of
“employee” (second definition) and“employee compensation,” ASC
220-40-50-6(b), ASC 220-40-50-30, and paragraphs BC90–BC92 of ASU
2024-03
FAQ 26
[Amended
September 30, 2026]
Question
Does a company need to separately disclose one-time employee
termination benefits?
Answer
Generally, yes. In accordance with ASC
220-40-50-6(b) and ASC 220-40-50-21(e), entities should separately
disclose one-time employee termination benefits within the scope of
ASC 420-10-50-1, as currently required under U.S. GAAP.
However, if an entity elects the practical
expedient outlined in FAQ 28 and presents salaries and employee benefits on
the face of its income statement in accordance with SEC Regulation
S-X, Rule 9-04,11 it would not be required to separately disclose one-time
employee termination benefits within the DISE footnote. While
entities subject to Rule 9-04 are not required to provide this
disclosure under ASC 220-40, an entity may still choose to
voluntarily disclose these one-time employee termination benefits
within the DISE footnote. An entity should apply the chosen approach
consistently. Separately, the entity must still disclose one-time
termination benefits in accordance with ASC 420, irrespective of the
practical expedient election in ASC 220-40.
Similarly, an entity that applies the Rule 9-04
practical expedient would not be required to disaggregate the
salaries and employee benefits expense caption (or a similarly named
caption) to present any of the other expenses, gains, and losses
listed in ASC 220-40-50-21 or ASC 220-40-50-22 included within the
caption, although the entity may elect to disclose such amounts
voluntarily within the DISE footnote. Separately, the entity must
still disclose the expense, gain, or loss in accordance with the
respective GAAP requirement, irrespective of the practical expedient
election in ASC 220-40.
References: ASC 220-40-50-6(b); ASC 220-40-50-20
through 50-22; ASC 420-10-50-1; ASC 220-40-55-16; paragraphs
BC90–BC96 of ASU 2024-03; and SEC Regulation S-X, Rule
9-04
FAQ 27
Question
If an employer provides subsidized goods/services
to employees, would the attributable cost be considered employee
compensation?
Answer
It depends. An entity can elect to include in
employee compensation “amounts attributable to other transactions
entered into for the benefit of employees (for example, the
provision of subsidized goods or services).” Such an election should
be applied consistently, and an entity should “disclose both that
those transactions have been included and a description of those
transactions.”
References: ASC 220-40-50-8 and paragraphs
BC90–BC96 and BC115 of ASU 2024-03
FAQ 28
Question
If a company has a caption for “salaries and
employee compensation” on the face of its income statement, does the
company need to disaggregate that expense caption in accordance with
ASU 2024-03?
Answer
It depends. Banks and bank holding companies may be
required to present certain expense captions (e.g., salaries and
employee benefits) separately, either on the face of the statement
of comprehensive income or in the notes, in accordance with SEC
Regulation S-X, Rule 9-04. Rule 9-04 applies to the consolidated
financial statements filed for “bank holding companies, savings and
loan holding companies, and the financial statements of banks and
savings and loan associations.”
ASU 2024-03 provides a practical expedient in which
entities presenting an expense caption for salaries and employee
benefits (or a similarly named caption) on the face of their income
statement to comply with the requirements in Rule 9-04 may continue
to classify amounts in accordance with Rule 9-04 and are not
required to apply the definition of employee compensation outlined
in ASC 220-40 (ASU 2024-03). See FAQ 26 for a discussion of how an
entity applying the practical expedient should consider one-time
employee termination benefits.
All other entities that either (1) do not elect the
Rule 9-04 practical expedient discussed above or (2) are not
eligible for the practical expedient, and that present an expense
caption consisting entirely of employee compensation expense (as
defined in ASU 2024-03), would not need to further disaggregate that
caption. In such cases, further disaggregation is not required
because the relevant expense caption meets the ASU’s disclosure
requirements. However, if the natural expense caption includes more
than one required expense category, further disaggregation of that
employee compensation expense caption is required. See FAQ 8 for
further discussion.
References: ASC 220-40-50-12; ASC 220-40-50-20;
paragraphs BC28, BC46(a), and BC90–BC96 of ASU 2024-03; and SEC
Regulation S-X, Rule 9-04
FAQ 29
[Added
September 30, 2026]
Question
Where should commission costs paid to employees be presented in the
tabular disclosure?
Answer
It depends. The category in which employee commission costs are presented
depends on whether the costs are expensed as incurred or
capitalized.
Employee commission costs that are expensed as incurred
should be included in the employee compensation category of the tabular
disclosure because they represent compensation provided to employees in
exchange for services (see FAQ 24
for a discussion of the types of costs included in employee
compensation).
However, employee commission costs that are capitalized
as incremental costs of obtaining a contract with a customer in
accordance with ASC 340-40 do not retain their original natural expense
classification as employee compensation. Instead, these costs are
presented on the basis of the nature of the expense at the time it is
recognized in the income statement (i.e., amortization of costs to
obtain a contract with a customer). Accordingly, employee commissions
capitalized as incremental costs of obtaining a contract under ASC
340-40 are not included in the employee compensation category when such
costs are subsequently recognized in earnings as amortization expense.
This same concept applies when other employee compensation costs are
capitalized to other types of assets (other than inventory) such as
fixed assets. See FAQ
48 for further discussion of costs that are capitalized
to assets other than inventory, which ASC 220-40 refers to as “certain
asset-related expenses.”
If amortization of the costs of obtaining a contract
with a customer is included entirely in one relevant expense caption,
those costs should be separately disaggregated in the tabular disclosure
in accordance with ASC 220-40-50-22(f). If amortization of the costs of
obtaining a contract with a customer is included in multiple expense
captions, those costs may be presented within “other” or may be
separately disclosed voluntarily. See FAQ
34 for further discussion of the tabular integration of
other disclosures.
References: ASC 220-40-50-6(b), ASC 220-40-50-14 and 50-15, ASC
220-40-50-22(f), and paragraph BC57 of ASU 2024-03.
Depreciation, Amortization, and DD&A
FAQ 30
[Amended
September 30, 2026]
Question
How does a company determine the amount of
depreciation, amortization, and DD&A for a relevant expense
caption?
Answer
The amounts provided for the depreciation category
should be consistent with the classification of amounts used to meet
the disclosure requirements in ASC 360-10-50-1(a) related to total
depreciation expense.
The amounts provided for the intangible asset
amortization category should be consistent with the classification
of amounts used to meet the disclosure requirements in ASC
350-30-50-2(a)(2) related to total intangible asset amortization
expense. While the term “amortization” in U.S. GAAP applies to
various assets and deferred costs, not all amounts described as
amortization are included in the intangible asset amortization
category required by ASC 220-40-50-6. An entity should look to the
requirements in ASC 350-30-50-2(a)(2) when determining the types of
amortization to include in the natural expense category for
intangible asset amortization. Common examples of amortization
expense that are not included in this category include amortization
of incremental costs to obtain a contract with a customer (ASC
340-40), amortization of film costs (ASC 926), and amortization of
broadcaster license agreements (ASC 920). While not included in
intangible asset amortization, these costs may be subject to
disaggregation in accordance with ASC 220-40-50-21 and 50-22. See
FAQ 34 for a summary of disclosure requirements under ASC
220-40-50-21 and 50-22.
When depreciation or intangible asset amortization is capitalized to
assets beyond inventory, the sum of the amounts disclosed within the
DISE disaggregated footnotes (ASC 220-40-50-6) may differ from the
totals disclosed in the specific footnotes for property, plant, and
equipment (ASC 360-10) or intangible assets (ASC 350-30). This is
discussed in paragraph BC102 of ASU 2024-03, which
states:
Depending on the extent to which depreciation or
intangible asset amortization is capitalized to assets other
than inventory, . . . the total amounts of depreciation and
intangible asset amortization disclosed in accordance with
paragraph 220-40-50-6 may not be equal to total depreciation and
intangible asset amortization disclosed in each respective
footnote in accordance with Subtopics 360-10 and
350-30.
The entity should also consider its existing
policies for presenting amortization of finance lease ROU assets and
leasehold improvements when considering the disaggregation of
depreciation and amortization expense, as discussed in FAQ 31.
DD&A of capitalized acquisition, exploration, and development
costs should be recognized as part of oil- and gas-producing
activities in a manner consistent with amounts recorded under ASC
932-360 in connection with extractive activities (oil and gas);
property, plant, and equipment; or other amounts of depletion
expenses. Other amounts of depletion expenses would include amounts
not recognized as part of oil- and gas-producing activities in
accordance with ASC 932-360 (such as depletion expense recognized by
entities within the scope of ASC 930 on mining).
References: ASC 220-40-50-6, ASC 220-40-50-9
through 50-11, ASC 220-40-50-21 and 50-22, and paragraphs
BC98–BC103 of ASU 2024-03
FAQ 31
Question
How should the amortization of finance lease ROU
assets and leasehold improvements be classified under ASU
2024-03?
Answer
Amortization of a finance lease ROU asset and
leasehold improvements that are recorded under ASC 842-20 should be
included in either depreciation or intangible asset amortization
expense in a manner consistent with how the entity presents
depreciation or amortization for similar assets.
References: ASC 220-40-50-10 and paragraphs BC38, BC100, and BC102
of ASU 2024-03
FAQ 32
Question
Where does amortization of DAC under ASC 944-30-35
fit into the required expense framework?
Answer
When applying ASU 2024-03, an entity should first
assess whether the expense caption containing DAC includes any of
the five required expense categories: (1) purchases of inventory,
(2) employee compensation, (3) depreciation, (4) intangible asset
amortization, and (5) DD&A recognized as part of oil and gas
activities or other types of depletion expenses. An entity should
also consider the guidance on asset-related expenses. When an
expense amount is related to the derecognition of an asset, other
than inventory, an entity should apply the disaggregation
requirements on the basis of the nature of the expense at the time
it is recognized in the income statement. For example, if an entity
capitalizes employee compensation cost and in a subsequent reporting
period recognizes an amortization expense, the entity does not need
to further disaggregate the resulting amortization (e.g., into
employee compensation).
If the expense caption that includes DAC does not include any
of the five required expense categories, no further disaggregation
is required because that expense caption is not considered a
relevant expense caption.
If the expense caption that includes DAC does include any of
the five required expense categories, that caption is considered a
relevant expense caption and further disaggregation is required.
Under ASC 220-40-50-22(u), amortization of
capitalized acquisition costs in accordance with ASC 944-30-50-1(c)
must be separately disclosed in the disaggregation of a relevant
expense caption if the amounts are included entirely in one expense
caption. Therefore, if the entire amount of DAC amortization is
included in one expense caption and that expense caption is a
relevant expense, DAC amortization should be presented as a separate
category in the tabular disclosure. See FAQ 34 for a discussion of certain
other expenses, gains, or losses that must be disclosed within a
relevant expense caption.
References: ASC 350-30-15-4(d), ASC
944-805-25-3, ASC 944-805-50-1, ASC 220-40-50-14, ASC
220-40-50-22(u), and paragraph BC44 of ASU 2024-03
FAQ 33
Question
Should amortization of capitalized software be
included in depreciation or intangible asset amortization?
Answer
It depends. The principal areas in the Codification
that apply to capitalized software costs are ASC 350-40 and ASC
985-20. We believe that, when determining how to classify
amortization of capitalized software (whether as depreciation or as
amortization of intangible assets), an entity should consult the
specific standard it is using to account for the software.
ASC 985-20
Before Adoption of ASU 2025-0612
Paragraph BC98 of ASU 2024-03 states the
following regarding software to be sold, leased, or
marketed:
[T]he current guidance is
clear that costs of software to be sold, leased, or
marketed capitalized in accordance with Subtopic 985-20,
Software — Costs of Software to Be Sold, Leased,
or Marketed, are subject to the disclosure
requirements in Subtopic 350-30 and, therefore,
amortization of those capitalized software costs is
considered intangible asset amortization for the
purposes of applying the amendments in this
Update.
While software costs accounted for under ASC 985-20 are not
subject to the accounting requirements of ASC 350, the
presentation and disclosure requirements of ASC 350 apply to
capitalized software costs (see ASC 985-20-45-3). The
Background Information and Basis for Conclusions of ASU
2024-03 specifies that amortization of software costs
accounted for in accordance with ASC 985-20 is considered
intangible asset amortization because those costs are
subject to the disclosure requirements in ASC 350-30.
After Adoption of ASU 2025-06
Because ASU
2025-06 does not change the accounting
for, or presentation or disclosure of, software within the
scope of ASC 985-20, we do not believe that the adoption of
ASU 2025-06 changes how an entity presents the amortization
of software capitalized in accordance with ASC 985-20 in its
DISE disclosure. Accordingly, entities should follow their
existing accounting policies as discussed above.
ASC 350-40
Before Adoption of ASU 2025-06
Paragraphs BC100 and BC101 of ASU 2024-03
state, in part, the following regarding internal-use
software:
BC100. The Board also is aware of
diversity in practice about the classification of
the amortization of internal-use software within the
scope of Subtopic 350-40, Intangibles — Goodwill
and Other — Internal-Use Software. . . .
BC101. The Board decided that
additional guidance for internal-use software is
unnecessary given the references in paragraph
350-40-50-1 to the disclosure requirements for
property, plant, and equipment in Subtopic 360-10.
The Board expects that entities will conclude that
the amortization of internal-use software should be
reflected in the disclosures required by the
amendments in this Update as either depreciation
recognized in accordance with Subtopic 360-10 or
intangible asset amortization recognized in
accordance with Subtopic 350-30.
Accordingly, entities should follow their existing accounting
policies to determine whether amortization of internal-use
software is included in the categorization of depreciation
(in accordance with ASC 360-10) or intangible asset
amortization (in accordance with ASC 350-30) and should
disclose it accordingly.
After Adoption of ASU 2025-06
Upon adoption of ASU 2025-06, ASC 350-40-50-1 requires
entities to apply the disclosure requirements in ASC 360-10
to capitalized internal-use software costs, regardless of
the financial statement presentation. However, paragraph
BC94 of ASU 2025-06 clarifies that this amendment does not
affect whether amortization of internal-use software is
presented as depreciation or amortization in the
disaggregation disclosures required under ASC 220-40;
accordingly, entities should follow their existing
accounting policies in such circumstances, as discussed
above.
In addition, paragraph BC94 of ASU 2025-06 states, in part,
the following:
The Board does not expect that the
amendments in paragraph 350-40-50-1 will change an
entity’s conclusion on whether the amortization of
internal-use software should be reflected in the
disclosures required by Subtopic 220-40, Income
Statement — Reporting Comprehensive Income — Expense
Disaggregation Disclosures, as either
depreciation or amortization.
References: ASC 985-20-45-3; paragraphs
BC98, BC100, and BC101 of ASU 2024-03; ASC 350-40-50-1; and
paragraph BC94 of ASU 2025-06
Tabular Integration of Disclosures and Other Items
FAQ 34
[Amended
September 30, 2026]
Question
How do the items in ASC 220-40-50-21 differ from
those in ASC 220-40-50-22, and when should such items be included in
the tabular disclosure for relevant expense categories?
Answer
ASC 220-40-50-21 and 50-22 include lists of certain
expenses, gains, or losses for which there is an existing GAAP
disclosure requirement. If a relevant expense caption (see FAQ
4) contains one of these specified items, and if the
specified expenses, gains, or losses are material and applicable to
the entity, they must be included in the tabular disaggregation of
that relevant expense caption.
ASC 220-40-50-21
The first list (in ASC 220-40-50-21) applies to specified
expenses, gains, or losses for which there is an existing
requirement to disclose both the amount and the income statement
line item that includes the amount. This requirement applies to
specific items that may be recorded in one or more relevant
expense captions.
The table below
summarizes the required GAAP disclosures related to the ASC
220-40-50-21 items.
|
Specified Items That Require
Disclosure Under GAAP
|
Relevant Guidance
|
|---|---|
|
a. The amount of research and
development assets acquired in a transaction other
than a business combination and written off
|
ASC 350-30-50-1(c)
|
|
b. Impairment loss recognized
related to an intangible asset
|
ASC 350-30-50-3
|
|
c. Impairment loss of
long-lived assets classified as held and used
|
ASC 360-10-50-2
|
|
d. Gain or loss recognized in
accordance with paragraphs 360-10-35-37 through
35-45 and 360-10-40-5 for long-lived assets
classified as held for sale or disposed of
|
ASC 360-10-50-3
|
|
e. Each major type of cost
associated with an exit or disposal activity (for
example, one-time employee termination benefits,
contract termination costs, and other associated
costs)
|
ASC 420-10-50-1
|
|
f. Components of net benefit
cost recognized (other than service cost amounts
included within employee compensation)
|
ASC 715-20-50-1(h)
|
|
g. Bargain purchase gain
recognized in a business combination
|
ASC 805-30-50-1(f)
|
|
h. Any gain or loss
recognized upon the deconsolidation of a
subsidiary or the derecognition of a group of
assets in accordance with paragraph
810-10-40-3A
|
ASC 810-10-50-1B
|
|
I. Gains and losses on
derivative instruments (and nonderivative
instruments that are designated and qualify as
hedging instruments) and related hedged items
|
ASC 815-20-25-58,
ASC 815-20-25-66,
ASC 815-10-50-4A
|
|
j. Amortization of license
agreements for program material
|
ASC 920-350-50-2
|
|
k. Impairment of license
agreements for program material
|
ASC 920-350-50-4
|
|
l. Amortization of film
costs
|
ASC 926-20-50-4A
|
|
m. Impairment of film
costs
|
ASC 926-20-50-4C
|
|
n. The total amount of a
government grant recognized during the reporting
period and presented as a deduction from the
related expense13
|
ASC 832-10-45-1(b),
ASC 832-10-45-3(b),
ASC 832-10-50-3A
|
|
o. Total expense recognized for environmental
credits not initially recognized as an asset in
accordance with paragraph 818-20-25-1 or
subsequently derecognized in accordance with
paragraph 818-20-40-214
|
ASC 818-20-50-3(a)
|
|
p. Total impairment expense recognized during
the reporting period relating to environmental credits15
|
ASC 818-20-50-3(b)
|
|
q. Total expense recognized for environmental
credit obligation liabilities16
|
ASC 818-30-50-3
|
ASC 220-40-50-22
The second list
(in ASC 220-40-50-22) applies to specified expenses, gains, or
losses for which there is an existing requirement to disclose
the amount but no requirement to disclose the income statement
line item that includes the amount. This requirement applies to
specific items only if the entire amount is included in one
relevant expense caption and not in multiple relevant expense
captions. The table below summarizes the required disclosures
related to the ASC 220-40-50-22 items.
|
Specified Items Requiring
Disclosure Under GAAP if Included Entirely in One
Expense Caption
|
Relevant Guidance
|
|---|---|
|
a. Provision for expected
credit losses
|
ASC 326-20-50-13,
ASC 326-30-50-9
|
|
b. Losses on firm purchase
commitments
|
ASC 330-10-50-5
|
|
c. Amortization expense
attributable to the expiration of an insurance or
reinsurance coverage provided under a contract
that transfers only significant underwriting
risk
|
ASC 340-30-50-2
|
|
d. Amortization of costs to
fulfill a contract with a customer
|
ASC 340-40-50-3
|
|
e. Impairment of costs to
fulfill a contract with a customer
|
ASC 340-40-50-3
|
|
f. Amortization of costs to
obtain a contract with a customer
|
ASC 340-40-50-3
|
|
g. Impairment of costs to
obtain a contract with a customer
|
ASC 340-40-50-3
|
|
h. Amortization of
capitalized implementation costs of hosting
arrangements that are service contracts
|
ASC 350-40-50-3
|
|
i. Asset retirement
obligation accretion expense
|
ASC 410-20-50-1
|
|
j. Loss contingencies
recognized
|
ASC 450-20-50-1
|
|
k. Warranty expense (the
total of expenses recognized related to aggregate
changes in the liability for accruals related to
product warranties issued during the reporting
period and the aggregate changes in the liability
for accruals related to preexisting warranties,
including adjustments related to changes in
estimates)
|
ASC 460-10-50-8
|
|
l. Expense related to
counterparty default in own-share lending
arrangements issued in contemplation of
convertible debt issuance
|
ASC 470-20-50-2C
|
|
m. Aggregate gain on
restructuring of payables by a debtor with a
troubled debt restructuring
|
ASC 470-60-50-1
|
|
n. Gains and losses upon
consolidation of a variable interest entity that
is not a business
|
ASC 810-10-50-3
|
|
o. Foreign currency
transaction gains or losses
|
ASC 830-20-50-1
|
|
p. Operating lease cost
|
ASC 842-20-50-4
|
|
q. Short-term lease cost
|
ASC 842-20-50-4
|
|
r. Variable lease cost
|
ASC 842-20-50-4
|
|
s. Net gain or loss
recognized from sale and leaseback
transactions
|
ASC 842-20-50-4
|
|
t. Gains and losses from
nonmonetary transactions
|
ASC 845-10-50-1
|
|
u. Amortization of
capitalized acquisition costs
|
ASC 944-30-50-1(c)
|
The tables above summarize the requirements in
ASC 220-40-50-21 and 50-22 related to inclusion of existing GAAP
disclosures in the DISE disaggregated footnote. ASUs other than
ASU 2024-03 have subsequently modified or added items to these
disclosure requirements, and future ASUs may further modify,
remove, or add items. Accordingly, after implementing DISE,
entities should continue to monitor standard-setting
developments and apply the requirements in effect for the
relevant reporting period. See FAQ 49 for further details
on postadoption activities.
The requirements introduced by ASU 2024-03 to
disclose the above items in a tabular format do not otherwise
affect the existing disclosure requirements in other areas of
GAAP.
If, under existing GAAP, an entity is only
required to annually disclose the items described in ASC
220-40-50-21 and 50-22, disclosure of such items under ASU
2024-03 would only be required for annual periods. Conversely,
for items that must be disclosed on an annual and interim basis
under existing GAAP, both annual and interim disclosures would
be required under ASU 2024-03.
Examples 4 and 5 further illustrate the
application of the requirements in ASC 220-40-50-21 and 50-22.
Example 4
Entity X, a manufacturing and services company,
presents the following income statement:
Entity X identifies “cost of services” as a
relevant expense caption because it includes one
or more of the natural expense categories listed
in ASC 220-40-50-6 — specifically, employee
compensation, depreciation, and intangible asset
amortization.
After identifying cost of services as a
relevant expense caption, X evaluates whether
certain expenses, gains, or losses listed in ASC
220-40-50-21 and 50-22 are included in that
caption.
Entity X determines that impairment losses
recognized on intangible assets under ASC
220-40-50-21(b) are included in cost of services
and therefore presents those amounts separately in
the tabular disaggregation.
In addition, X determines
that operating lease cost under ASC
220-40-50-22(p) is included entirely within cost
of services and therefore presents those amounts
separately in the tabular disaggregation. By
contrast, X determines that the amortization of
costs to fulfill contracts with customers under
ASC 220-40-50-22(d) is included in both cost of
services and the “cost of products sold” caption
rather than entirely within a single relevant
expense caption. Accordingly, the amortization of
costs to fulfill contracts with customers is not
separately presented in the tabular disaggregation
and the portion included in cost of
services is reflected in “other cost of
services. ”
The table below illustrates the disaggregation
of the cost of services caption for the years
ended December 31, 20X4, 20X3, and 20X2. Entity X
would perform a similar analysis for each relevant
expense caption in its consolidated income
statement.
Example 5
Entity Y is a bank holding company that
presents the following income statement in
accordance with SEC Regulation S-X, Rule 9-04.
Entity Y is eligible for, and has elected to
apply, the practical expedient for bank holding
companies under ASC 220-40-40-20 for salaries and
employee benefits. Entity Y presents the following
income statement:
In this example, Y identifies “other expenses”
as one relevant expense caption because it
includes a natural expense category listed in ASC
220-40-50-6, specifically intangible asset
amortization. Additional expense captions in the
consolidated income statement may also be relevant
if they include a natural expense category. Entity
Y would evaluate each expense caption separately.
After identifying other
expenses as a relevant expense caption, Y
evaluates whether certain expenses, gains, and
losses listed in ASC 220-40-50-21 and 50-22 are
included in that caption.
Entity Y determines that
components of net benefit costs under ASC
220-40-50-21(f) are included in other
expenses.(a) That is, Y determines that
each of the relevant components of net benefit
cost, other than the service cost component that
must be disclosed under ASC 715-20-50-1(h), is
included in the other expensesincome statement
line item. Entity Y presents each relevant
component in the other expenses tabular
disclosure.
In addition, Y determines that impairment
losses related to intangible assets under ASC
220-40-50-21(b) are included in other expenses.
Although such impairment losses would need to be
separately presented in the applicable relevant
expense caption’s tabular disclosure, Y concludes
that the impairment losses are immaterial and
applies the guidance in ASC 105-10-05-6 stating
that the “provisions of the Codification need not
be applied to immaterial items.” Accordingly, Y
does not separately disaggregate those amounts in
the tabular disclosure below and includes the
amounts in “other.”
Entity Y does not identify any of the items
listed in ASC 220-40-50-22 as being included
entirely in other expenses.
The table below illustrates the disaggregation
of the other expenses caption for the years ended
December 31, 20X4, 20X3, and 20X2. Entity Y would
perform a similar analysis for each other relevant
expense caption presented in its consolidated
income statement.
References: ASC 105-10-05-6, ASC
220-40-50-21 and 50-22, ASC 220-40-55, ASC 715-20-50-1(h),
ASC 715-20-50-6(a), and paragraphs BC104–BC106 of ASU
2024-03
FAQ 35
[Amended
September 30, 2026]
Question
If the items in ASC 220-40-50-21 and 50-22 are
already disclosed elsewhere in the financial statements, does an
entity need to disaggregate these items in the tabular disclosure
for the relevant expense category?
Answer
Yes. Even if the above items are already disclosed elsewhere in the
financial statements in accordance with existing GAAP, unless the
disclosures are deemed immaterial, the items must also be included
in the tabular disaggregation of the relevant expense caption as
long the expense caption in the income statement includes one or
more of the specified categories: (1) inventory purchases, (2)
employee compensation, (3) depreciation, (4) intangible asset
amortization, or (5) DD&A for oil and gas or other depletion. In
paragraph BC25(b) of ASU 2024-03, the Board concluded that
incorporating the disclosures required by current GAAP into the same
tabular format disclosure improves transparency by reducing an
investor’s cost and effort related to identifying and locating the
information.
However, ASU 2024-03 does not change an entity's
existing materiality assessment. Therefore, disclosures included in
ASC 220-40-50-21 and 50-22 that a reporting entity has previously
determined to be immaterial, and that continue to be immaterial on
the basis of the entity’s assessment for each reporting period, do
not need to be separately disaggregated or disclosed solely as a
result of ASU 2024-03. See FAQ
41 for a discussion of materiality considerations
related to applying ASU 2024-03.
References: ASC 220-40-50-21 and 50-22 and
paragraphs BC25(b), BC105, and BC122 of ASU 2024-03
FAQ 36
[Amended
September 30, 2026]
Question
What disclosures are required for “other items,” as
defined in ASC 220-40-50-30, that are within a relevant expense
caption?
Answer
Entities must disclose the total amount of other
items. No separate quantification is needed for each natural expense
item, but an entity must disclose a qualitative description of the
composition of other items on the basis of their natural expense
classification. This “other items” disclosure reflects the residual
amount remaining in the relevant expense captions that are not
separately disaggregated.
The definition of “natural expense classification”
in the ASC master glossary, as amended, is “[a] method of grouping
expenses according to the types of economic benefits received in
incurring those expenses. Examples of natural expense
classifications include salaries and wages, employee benefits,
nonemployee professional services, supplies, interest expense, rent,
utilities, and depreciation.”
There is no quantitative threshold for what is
included in “other items”; however, ASU 2024-03 specifies that the
level of qualitative detail should be “commensurate with the
significance of the amounts being described.” Entities can
voluntarily disclose additional quantified expense categories as
long as such disclosures are not combined with the required
disaggregated expense amounts.
The disclosure
example in ASC 220-40-55-11below (added by ASU 2024-03) illustrates
the qualitative disclosure of “other items” remaining in relevant
expense captions.
ASC 220-40
55-11 . . .
References: ASC 220-40-50-30, ASC 220-40-55-11,
paragraph BC28(e) of ASU 2024-03, and the definition of “natural
expense classification” in the ASC master glossary
Expense Reimbursements
FAQ 37
[Added
September 30, 2026]
Question
What types of arrangements include expense
reimbursements that would be subject to the DISE disclosure requirements
in ASC 220-40-50-26 through 50-29?
Answer
ASU 2024-03 requires disclosure of expense
reimbursement amounts included in relevant expense captions that are
related to a cost-sharing or cost-reimbursement arrangement with another
entity. However, expense reimbursements, cost-sharing arrangements, and
cost-reimbursement arrangements are not defined. Examples of such
arrangements may include, but are not limited to, (1) collaborative
arrangements such as codevelopment, comarketing, and copromotion
arrangements; (2) research and development funding arrangements; and (3)
certain cooperative advertising arrangements.
In general, the guidance is not intended to apply to reimbursements of
costs when such reimbursements are recorded as revenue within the scope
of ASC 606 (i.e., cost-plus margin arrangements) and payments between
vendors and customers in the ordinary course of a vendor-customer
relationship that are accounted for as a reduction of the cost of the
vendor’s goods or services. Such payments may include rebates, credits,
and other vendor consideration.
An entity may need to use judgment to determine which arrangements
constitute expense reimbursements related to cost-sharing or
cost-reimbursement arrangements and should apply its conclusions
consistently to similar types of arrangements.
In addition, ASU 2024-03 only requires entities to
provide expense reimbursement disclosures when qualifying arrangements
are included in a relevant expense caption. If a payment is presented
outside of a relevant expense caption (e.g., in revenue or other income)
or a payment from another entity is not presented net of the expense
reimbursement within a relevant expense caption, the payment would not
be subject to the expense reimbursement disclosure requirement. See
FAQ 38
for further details on identifying qualifying arrangements and relevant
expense captions. In addition, see FAQ
39 for more information about disclosure alternatives and
illustrative examples.
References: ASC 220-40-50-26 through 50-29
FAQ 38
[Amended
September 30, 2026]
Question
Is an entity required to include expense
reimbursements in the tabular disaggregation of a relevant expense
caption?
Answer
Yes. ASU 2024-03 requires disclosure of expense
reimbursement amounts included in relevant expense captions that are
related to a cost-sharing or cost-reimbursement arrangement with
another entity.
Qualifying expense reimbursements must be
disaggregated in either of the following situations:
- An entity includes amounts net of expense reimbursements from another entity within a relevant expense caption.
- An entity includes expense reimbursement to another entity in a relevant expense caption.
Expense reimbursements related to cost-sharing or
cost-reimbursement arrangements must only be disclosed when they are
included in a relevant expense caption and when they meet the above
criteria (see FAQ
4 for additional details about identifying relevant
expense captions). Entities should evaluate how qualifying
arrangements are accounted for and classified in the income
statement to determine whether ASU 2024-03 requires disclosure. If
a payment is presented outside a relevant expense caption or a
payment from another entity is not presented net of the expense
reimbursement within a relevant expense caption, it would not be
subject to the expense reimbursement disclosure requirement.
For example, entities in the life sciences industry commonly enter
into R&D cost-sharing arrangements (e.g., collaborative
arrangements) and R&D funding arrangements. Such arrangements
are often complex, and their terms and conditions may vary.
Participants in these arrangements will need to evaluate the
appropriate accounting treatment and related income statement
classification for payments between collaboration or funding
partners. When payments between partners are presented in R&D
expense (or another relevant expense caption), they will generally
be subject to the expense reimbursement disclosure requirements of
ASU 2024-03. However, when payments between partners are reported
outside of R&D expense, such as in revenue or other income, they
are generally not subject to the ASU’s expense reimbursement
disclosure requirements. For example, in R&D funding
arrangements, passive third-party investors often provide funds to
offset some of the costs associated with an R&D program. When
payments are classified as contra-R&D expense (e.g., when
substantive and genuine risk transfer has occurred and the
arrangement is inconsistent with the entity’s ordinary activities),
the payments will generally be subject to the ASU’s disclosure
requirements. However, when the arrangement represents an obligation
to repay the funding party (risk transfer is not substantive and
genuine) or when the contract to perform R&D services is
reported outside of R&D expense (or another relevant expense
caption), such as in revenue or other income, payments under the
arrangement are not subject to the ASU’s expense reimbursement
disclosure requirements. See Section 12.14.5 of Deloitte’s Life Sciences Industry Accounting
Guide for additional considerations related to
the life sciences industry.
Regarding expense reimbursements from
another entity, an entity can elect certain alternatives related to
disclosing the information; see FAQ 39 for additional details
about disclosure alternatives and illustrative examples.
References: ASC 220-40-50-26, ASC 220-40-50-28,
and ASC 220-40-55-18
FAQ 39
[Amended
September 30, 2026]
Question
What are the disclosure requirements related to
expense reimbursements received from another entity, as well as
expense reimbursement paid to another entity, when the amounts are
included in a relevant expense caption?
Answer
Expense Reimbursements Received From Other Entities
An entity that presents a relevant expense
caption reflecting amounts net of expense reimbursements
received from another entity under a cost-sharing or
cost-reimbursement arrangement must disclose this information in
a tabular format. The entity may elect one of the following
alternatives discussed in ASC 220-40-50-26 and should apply the
alternative consistently once it is elected:
- Separately disclose the amount of the expense reimbursement
- Disclose the amounts of the [required] expense categories . . . that are included in the relevant expense caption net of any reimbursement effects.
An entity that elects to separately disclose
the reimbursement amount (alternative (a) above) must also
include a qualitative description of the expense categories
related to the reimbursement.
Alternatively, an entity may elect to present
expense categories net of the reimbursement from another entity
(alternative (b) above). For example, if an entity receives
reimbursement from a strategic partner for employee compensation
as part of a funded research and development arrangement, the
reimbursement would be included as a reduction of the employee
compensation category.
Further, ASC 220-40-50-27 requires entities to
disclose how expense reimbursements related to cost-sharing or
cost-reimbursement arrangements are presented in the tabular
format.
ASC 220-40-55-17 and 55-18, added by ASU
2024-03, illustrate the scenario described in alternative (a)
above.
ASC 220-40
55-17 Entity X has a funded research and
development cost-sharing arrangement with a
strategic partner. Entity X recognizes an expense
reimbursement from the strategic partner in
research and development expenses and, in
accordance with paragraph 220-40-50-26(a), elects
to separately disclose the amount of that expense
reimbursement. If Entity X had elected to present
a relevant expense caption net of an expense
reimbursement from another entity, it would have
been required to disclose the amount of the
expense categories that are included in each
relevant expense caption. Additionally, in
accordance with paragraph 220-40-50-29, Entity X
qualitatively describes the expense categories to
which the reimbursement relates.
55-18 Entity X provides the following
disclosure.
Expense Reimbursements Paid to Other Entities
Expense reimbursements that are paid to other
entities in connection with a cost-sharing or cost-reimbursement
arrangement and that are included within a relevant expense
caption must be separately presented in the tabular disclosure
(as discussed in ASC 220-40-50-28). The entity should also
include a qualitative description of which natural expense
categories are reimbursed (see ASC 220-40-50-29).
The table below
summarizes the requirements discussed above:
|
Expense Reimbursement for
Cost-Sharing or Cost-Reimbursement
Arrangements
|
Election*
|
Tabular Format
|
Disclosure**
|
|---|---|---|---|
|
Expense reimbursement received from other entities
within a relevant expense caption. Entity selects
alternative (a).
|
Election (a) — Disclose
separately the amount of the expense
reimbursement.
|
Separate disclosure in the
disaggregated expense table (see the example in
ASC 220-40-55-17 and 55-18).
|
|
|
Expense reimbursement received from other entities
within a relevant expense caption. Entity selects
alternative (b).
|
Election (b) — Disclose the
amounts of the required expense categories that
are included in the relevant expense caption, net
of any reimbursement effects.
|
Tabular disclosure, netted
with the expense category discussed in ASC
220-40-50-6.
|
|
|
Expense reimbursement paid to other entities
|
Not applicable.
|
Separate disclosure in the
disaggregated expense table within the expense
categories discussed in ASC 220-40-50-6.
|
|
|
* Elections (a) and (b) as
indicated in ASC 220-40-50-26.
** Disclosure in accordance
with ASC 220-40-50-27 and ASC 220-40-50-29.
| |||
The examples below illustrate how expense
reimbursements from a strategic partner in R&D expenses
could be presented.
Example 6
Entity K has determined that R&D expense is
a relevant expense caption because it contains
employee compensation (one of the natural expense
categories listed in ASC 220-40-50-6). In
addition, K has entered into an R&D funding
arrangement. Entity K recognizes an expense
reimbursement from the strategic partner in
R&D expenses.
Cost reimbursements received were $7,000,
$6,000, and $5,000 in 20X6, 20X5, and 20X4,
respectively. These cost reimbursements are
related to employee compensation and material
costs. Specifically, cost reimbursements related
to employee compensation were $4,000, $3,500, and
$3,000 in 20X6, 20X5, and 20X4, respectively, and
cost reimbursements related to material costs were
$3,000, $2,500, and $2,000 in 20X6, 20X5, and
20X4, respectively. In this scenario, material
costs for which R&D cost reimbursements were
received are not considered inventoriable in
accordance with ASC 330.
Assume that K elects to separately disclose the
amount of the expense reimbursement in accordance
with ASC 220-40-50-26(a). The disclosure is
presented in the manner shown below.
Because K elects to
separately disclose the amount of expense
reimbursement, it provides in note (**) a
qualitative description of the natural expense
categories to which the expense reimbursement is
related (in accordance with ASC 220-40-50-29).
Entity K also discloses the alternative elected in
the notes to the financial statements.
Example 7
Assume the same facts as in Example 6, except
that Entity K elects to present the amount of the
expense categories that are included in the
R&D expense caption net of any reimbursement
effects in accordance with ASC 220-40-50-26(b).
The disclosure is presented in the manner shown
below.
Because K elects to present the amount of the
expense categories net of reimbursements, no
further qualitative description is required.
Material costs related to R&D expenses
incurred as part of the R&D funding
arrangement are presented in the other R&D
expense category. Entity K also discloses the
alternative elected in the notes to the financial
statements.
References: ASC 220-40-50-26 through 50-29,
and ASC 220-40-55-17 and 55-18
Other
FAQ 40
[Amended
September 30, 2026]
Question
What needs to be disaggregated or disclosed for
relevant expense captions on an annual and, when applicable, interim
basis?
Answer
The following table summarizes the annual and
interim disclosure requirements:
|
Requirement
|
Tabular Disclosure
|
Description
|
Interim
|
Annual
|
|---|---|---|---|---|
|
Natural expenses included within relevant
expense captions
|
In tabular disclosure
|
For relevant expense captions, disaggregate the
five natural expenses as described in ASC
220-40-50-6. These natural expense categories
include (1) purchases of inventory,17 (2) employee compensation, (3) depreciation,
(4) intangible asset amortization, and (5)
DD&A recognized as part of oil- and
gas-producing activities or other types of
depletion expenses.
|
X
|
X
|
|
Certain expenses, gains, or
losses included within the relevant expense
caption (ASC 220-40-50-21)
|
In tabular disclosure
|
For relevant expense captions, disaggregate
certain expenses, gains, or losses as described in
ASC 220-40-50-21. The timing of these disclosures
is consistent with the applicable existing GAAP
requirements.
If an item described in ASC
220-40-50-21 or ASC 220-40-50-22 must be disclosed
only annually under existing GAAP, the item is
disaggregated under ASU 2024-03 only for the
annual period. Conversely, if an item must be
disclosed both annually and on an interim basis
under existing GAAP, the item is disaggregated
under ASU 2024-03 for both annual and interim
periods.
See FAQ 34 for more
information.
|
Under existing GAAP
|
Under existing GAAP
|
|
Certain other expenses,
gains, or losses included entirely in one relevant
expense caption (ASC 220-40-50-22)
|
In tabular disclosure
|
For relevant expense
captions, disaggregate certain other expenses,
gains, or losses included within the relevant
expense caption, only if those amounts are
included entirely in one expense caption and not
over multiple expense captions, as described in
ASC 220-40-50-22. The timing of these disclosures
is consistent with the existing GAAP requirements
discussed above for ASC 220-40-50-21. See
FAQ 34 for
more information.
|
Under existing GAAP
|
Under existing GAAP
|
|
Expense reimbursements
|
In tabular disclosure
|
X
|
X
| |
|
Other items remaining in relevant expense
captions
|
In tabular disclosure
|
For relevant expense
captions, disclose the amount of other items
remaining in relevant expense captions that are
not separately disaggregated, along with a
qualitative description of their composition, as
noted in ASC 220-40-50-30. There is no requirement
to separately quantify these other items. See
FAQ 36 for
additional considerations related to “other
items.”
|
X
|
X
|
|
Selling expenses amount
|
Outside tabular disclosure in a manner similar
to the presentation of R&D and advertising
expenses.
|
Disclose a separate total amount of selling
expenses.
|
X
|
X
|
|
Definition of selling expense
|
Outside tabular disclosure in a manner similar
to the presentation of R&D and advertising
expenses.
|
Disclose the definition of selling expenses
annually, or in an interim period only if the
definition changes.
|
—
|
X
|
References: ASC 220-40-50-6, ASC 220-40-50-10,
ASC 220-40-50-21 and 50-22, ASC 220-40-50-26 through 50-30, ASC
220-40-50-32 and 50-33, ASC 220-40-50-35 and 50-36, and
paragraph BC118 of ASU 2024-03
FAQ 41
Question
How should an entity consider materiality when
evaluating the disclosure requirements of ASU 2024-03?
Answer
In developing ASU 2024-03, the FASB observed that
ASC 105-10-05-6 already establishes that “[t]he provisions of the
Codification need not be applied to immaterial items.” Accordingly,
in a manner consistent with that guidance, the Board clarifies in
paragraph BC122 of the ASU that the requirements to disaggregate
relevant expenses do not apply to immaterial items. Entities are
reminded to consider both quantitative and qualitative factors when
using judgment to determine whether a relevant expense is immaterial
under the ASU’s disaggregation requirements.
Similarly, as discussed in FAQ 42, entities should consider
materiality when making estimates.
References: Paragraph BC122 of ASU 2024-03, and
ASC 105-10-05-6
FAQ 42
Question
Can entities use estimates or other methods to
approximate the amounts disclosed?
Answer
Yes. ASU 2024-03 allows entities to use accounting
estimates or other methods that produce a reasonable approximation
of the amounts that must be disclosed. In ASC 220-40-55-2, the Board
acknowledged that the level of recordkeeping and computational
detail needed to apply the guidance could be burdensome to an
entity. Accordingly, paragraph BC28(j) of the ASU clarifies that the
use of estimates is intended to alleviate concerns about potential
reporting system and process limitations an entity could encounter
in preparing the disclosures. Therefore, it may not be necessary to
use “transaction-level detail” to determine the disaggregated
amounts that must be disclosed under the ASU. Instead, an entity may
use a reasonable approach to prepare the disclosures in a systematic
and rational manner.
Entities may decide to use transaction-level detail, estimates, or a
combination when developing their disclosures.
For example, an entity may use an estimate when it has many disparate
IT systems and it is impractical to use transactional data to
determine the expense category amount. In such cases, the entity may
determine an estimate for smaller business units on the basis of
transactional data from other business units. However, the entity
would need to have a basis for the assumption that the transactions
at the smaller business unit on a different IT system are similar
enough to the business units for which transactional data are
used.
When using an estimate, an entity should evaluate and document its
approach to determining the estimate, including the method, data,
and assumptions used and why such assumptions are appropriate. To
ensure continued accuracy and relevance, the entity should regularly
reevaluate and update its estimation techniques, the data used, and
the underlying assumptions.
References: ASC 220-40-50-1 and 55-2 and
paragraphs BC28 and BC53 of ASU 2024-03
FAQ 43
Question
Are entities required to recast prior periods when
changing the basis of disclosure?
Answer
Yes. Entities are required to apply the guidance in
ASU 2024-03 consistently for all periods presented. ASC 220-40-50-4
states that if entities change how they present the disclosures “as
a result of a change in the election of an alternative or a change
in a definition of a disclosure,” they are required to:
- “Disclose the reason for the change in the period of the change (in the interim and annual reporting periods affected by the change).”
- “Recast the prior periods presented for comparative purposes, except for the requirements in paragraphs 220-40-50-22 through 50-23, unless it is impracticable to do so. If it is impracticable to do so, the entity shall disclose that fact and explain why it is impracticable to recast prior periods.”
ASC 220-40-50-4 further clarifies that the changes described above
“do not represent a change in accounting principle in accordance
with Topic 250 on accounting changes and error corrections.”
However, paragraph BC121 of ASU 2024-03 notes that “trend
information is important to investors”; therefore, the Board expects
that prior-period disclosures would be updated to provide
comparative information when changes occur.
In paragraph BC124 of the ASU, the Board states that its decisions
related to changes in presentation “should not be applied by analogy
to disclosure requirements” outside the scope of the ASU.
If, on the basis of a change in facts and circumstances, the entity
changes the presentation of an item listed in ASC 220-40-50-22 in
such a way that the item is presented in one relevant expense
caption in the current reporting period and in multiple relevant
expense captions in a comparative reporting period, or vice versa,
the entity is not required to recast the prior-period disclosures.
Instead, the entity must provide the disclosure under ASC
205-10-50-1 related to changes in the basis of presentation that
affect comparability.
For example, assume that, in the prior year, an
entity had multiple operating leases and recognized costs in both
cost of services and SG&A expenses and therefore was not
required to include operating lease costs in the disaggregated
expense disclosures. In the current year, the entity has a single
operating lease and recognizes costs for that lease entirely in
SG&A expenses. Therefore, in the current year, the operating
lease cost must be separately disclosed in the disaggregation of
SG&A expenses. The entity is not required to recast the
prior-year disclosure but is required to disclose the change in
circumstance that affects comparability.
See FAQ 54 for considerations related to recasting
prior-period selling expenses if an entity changes the definition of
selling expenses in the current period.
References: ASC 220-40-50-4 and paragraphs BC111, 121, and 124 of
ASU 2024-03
FAQ 44
[Amended
September 30, 2026]
Question
Can liability-related expenses, such as certain
accrued expenses, be excluded from disaggregation?
Answer
It depends. ASC 220-40-50-16 indicates that certain
liability-related expenses may be excluded from the disaggregation
into the natural expense categories in ASC 220-40-50-6 (purchases of
inventory, employee compensation, depreciation, amortization, and
DD&A). ASU 2024-03 provides a principle-based framework for
assessing when certain liability-related expenses would not be
subject to the disaggregation requirements. Specifically, ASC
220-40-50-16 states that disaggregation would not be required if all
of the following criteria are met:
a. The expense relates to an obligation that will be
settled in the future and there is uncertainty about the
timing of settlement.
b. The expense relates to an obligation that is based
on an estimate of a future expenditure.
c. The expense is not entirely made up of one required
expense category (for example, employee
compensation).
As indicated in paragraph BC45 of the ASU, the types of expenses that
can be excluded are “based on an obligation that is an estimate of
an uncertain amount that will be settled in the future.” The Board
further indicates that this clarification was intended to address
concerns raised by some respondents that disaggregating such
expenses would be operationally complex and have limited usefulness
to investors. For example, if a liability-related expense, such as
the accrual of a long-term warranty liability, includes estimated
amounts for employee compensation and third-party costs, an entity
would not be required to separately identify and disaggregate these
amounts.
Examples of liability-related expenses that may meet the criteria to
be excluded from the disaggregation include amounts related to
provisions for contract losses, claims and claim adjustments, and
asset retirement obligations.
Examples of expenses that would not meet these criteria include
“amounts related to accruals for liabilities to pay for goods or
services that have been received or supplied but have not been paid
or invoiced, including amounts due to employees (for example,
amounts relating to accrued bonuses, vacation pay, or pension
obligations).”
However, entities should assess whether these
liability-related expenses are subject to existing GAAP disclosure
requirements and whether such disclosures should be incorporated
into the tabular format outlined in ASC 220-40-50-21 and 50-22. See
FAQ 30 for more information about the tabular
integration of other disclosure requirements.
ASC 220-40 does not address the presentation requirements that an
entity would apply upon settlement of these liability-related
expenses. See FAQ 45 for
additional considerations.
References: ASC 220-40-50-16 through 50-18 and
paragraphs BC28(h) and BC45 of ASU 2024-03
FAQ 45
[Amended
September 30, 2026]
Question
How should the settlement of certain liability-related expenses discussed
in FAQ 44 be presented in the
disaggregation of a relevant expense caption?
Answer
ASU 2024-03 indicates that certain liability-related expenses may be
excluded from the disaggregation into the natural expense categories in
ASC 220-40-50-6 (see FAQ 44). We believe that disaggregation into the
natural expense categories is not required upon recognition; however,
there is no explicit guidance on how those amounts should be presented
upon derecognition (i.e., when the liability is subsequently settled).
In the absence of explicit guidance, we believe that multiple
presentations may be acceptable, provided that the presentation is
applied consistently to similar types of accruals.
For example, an entity may present an expense in “other items” within the
DISE disaggregation upon accrual. In a subsequent year when actual costs
are incurred to satisfy the obligation, an entity may conclude that it
is appropriate to present those costs within “other” (together with and
offsetting the reversal of the initial accrual) even if the actual costs
incurred to satisfy the obligation represent one of the required natural
expenses (i.e., employee compensation). An entity that uses this
approach may be required to track the nature of the costs used to
satisfy the obligation so that it can adjust the required natural
expense categories (e.g., purchases of inventory or employee
compensation) when they are used to satisfy the obligation. This
approach may be operationally challenging for some entities.
Alternatively, an entity may conclude that it is appropriate to present
the actual costs incurred by natural expense category in ASC
220-40-50-6, with an offsetting reversal of the accrual in “other
items.” This approach may be more closely aligned with certain entities’
operational recording processes.
To illustrate these two approaches, consider the following example.
Assume in year 1 that an entity records an accrual for a $100 liability
that meets the requirements of ASC 220-40-50-16 (a “judgmental accrual”)
within cost of sales, which is a relevant expense caption. The entity
expects to satisfy the $100 liability by incurring employee compensation
and third-party service costs. In year 1, the entity presents the $100
expense entirely within the “other items” line item in the
disaggregation of costs of sales, as permitted by ASC 220-40-50-16. In
year 2, the entity incurs $70 of employee compensation and $30 of
third-party service costs to settle the liability. Operationally, within
the entity’s general ledger, the entity records $70 of employee
compensation and $30 of third-party service costs in the general ledger
and reverses the $100 accrual from the general ledger account in which
it was initially recorded. The DISE disaggregation may be presented as
follows:
The entity should also consider the disclosure
requirements in ASC 220-40-50-30 related to the qualitative description
of “other items.” See FAQ 36 for
further discussion.
References: ASC 220-40-50-16 and 50-17
FAQ 46
Question
What should a vertically integrated entity consider
when adopting ASU 2024-03?
Answer
When adopting ASU 2024-03, vertically integrated
entities should report consolidated expense information that
reflects only external inventory purchases, ensuring that all
intra-entity transactions, such as transfers of raw materials or
finished goods between subsidiaries, are eliminated upon
consolidation. In paragraph BC81 of the ASU, the FASB acknowledged
that it is often impracticable for many entities to separately
disclose purchases or consumption of raw materials, work-in-process,
and finished goods as distinct categories. Distinguishing between
these categories can be challenging, particularly in situations
involving significant intra-entity transactions, which are
eliminated upon consolidation. Accordingly, the Board decided that
purchases of inventory should reflect only those expenses remaining
after consolidation, ensuring elimination of intra-entity
transactions.
Similarly, in paragraph BC53, the FASB acknowledged
that intra-entity department allocations used in consolidated
financial statements could create practical challenges and potential
burdens for preparers with respect to the disaggregation of expense
categories. To address these concerns, the Board clarified that
entities are not required to use transaction-level detail to meet
the disclosure requirements. Instead, entities may use reasonable
approximations, such as estimates or other systematic approaches, to
disaggregate expense categories (as discussed in FAQ 42).
Entities with significant intercompany transactions
may encounter challenges given that their data may be located in
disparate accounting systems and their business processes in
different geographical areas may be inconsistent. An entity should
consider whether the current information is sufficient to meet the
disclosure requirements. That is, the entity will need to consider
how to eliminate intercompany transactions from consolidated amounts
that are disaggregated into the relevant expense categories in the
tabular format disclosure — for example, whether the intercompany
transaction can be easily unwound or whether the entity should
consider using an estimate (see FAQ 42). Early engagement with
local components and data owners is critical to ensuring that the
disclosure requirements are understood and that local data can be
aggregated to the group reporting level.
References: Paragraphs BC53 and BC81 of ASU 2024-03
FAQ 47
Question
How should a company consider the requirements in
SAB Topic 11.M
(SAB 74) related to disclosure of recently issued accounting
standards in its periodic filings on Form 10-K and 10-Q before the
adoption of ASU 2024-03?
Answer
SAB Topic 11.M (SAB 74) requires registrants to
provide transition disclosures about the impact that recently issued
accounting standards may have on the financial statements when the
standards are adopted. These disclosures, which should take into
account the impact of the full scope of the new standards, including
recognition, measurement, presentation, and disclosure, are meant to
help financial statement users assess the effect that the new
standards will have once adopted.
According to SAB Topic 11.M, a registrant should consider including
the following disclosures in MD&A and the footnotes to the
financial statements:
- A brief description of the new standard, the date that adoption is required and the date that the registrant plans to adopt, if earlier.
- A discussion of the methods of adoption allowed by the standard and the method expected to be utilized by the registrant, if determined.
- A discussion of the impact that adoption of the standard is expected to have on the financial statements of the registrant, unless not known or reasonably estimable. In that case, a statement to that effect may be made.
- Disclosure of the potential impact of other significant matters that the registrant believes might result from the adoption of the standard . . . .
The registrant should also provide additional qualitative disclosures
about the effect of the new accounting policies and how they compare
with the current accounting policy as well as about implementation
matters the registrant may need to consider or activities it may
need to perform.
Reference: SAB Topic 11.M
FAQ 48
[Amended
September 30, 2026]
Question
Is an entity required to disaggregate costs
capitalized as an asset, other than inventory, into the natural
expense categories?
Answer
No. Except for inventory disclosed under the
cost-incurred basis (see ASC 220-40-50-31(a) and FAQ 17), an
entity is not required to further disaggregate costs capitalized as
an asset, even if those capitalized costs include the natural
expense categories referred to in ASC 220-40-50-6.
In paragraph BC57 of ASU 2024-03, the Board
explained that “capitalization of a cost to an asset affects the
natural classification of that cost” and that “any expense that is
subsequently recognized would have a different natural
classification than the cost that was capitalized.” Therefore, in
accordance with ASC 220-40-50-14, if an expense is related to the
derecognition of an asset other than inventory (referred to as
“certain asset-related expenses”), the entity should classify the
expense on the basis of the nature of the expense at the time it is
recognized in the income statement.
For example, an entity may capitalize employee compensation when
constructing new property, plant, and equipment (PP&E) for
internal use; the subsequent depreciation of such PP&E would be
included solely within the depreciation expense category. The entity
would not be required to identify the portion of the depreciation
expense originally attributable to employee compensation or include
it in the employee compensation category.
References: ASC 220-40-50-14 and 50-15 and
paragraph BC57 of ASU 2024-03
FAQ 49
[Amended
September 30, 2026]
Question
What should entities consider as they implement the DISE standard?
Answer
Although it will be over a year before most entities issue financial
statements incorporating the new DISE disclosures, entities are
encouraged not to wait to begin the implementation process. While the
impact of adoption will vary by entity and industry, ASU 2024-03 notes
that nearly all entities within the scope of the ASU will disclose more
information after implementing the ASU; therefore, it is important for
all entities to have an implementation plan in place well in advance of
the effective date.
Deloitte’s March 13, 2026, Accounting
Spotlight provides an illustrative framework
highlighting key activities that an entity may consider including in its
own roadmap for implementing the DISE standard. The framework consists
of the following four phases:
- Phase 1: Understanding, Education, and Planning —Entities should understand the standard, consider current presentation and disclosures, review existing accounting and disclosure policies, and educate key stakeholders at the organization (e.g., accounting, finance, operations, IT, investor relations, internal audit). In addition, entities should consider current processes and controls and review data flows.
- Phase 2: Assessment —Entities should perform a scope and gap analysis in which they determine (1) relevant expense captions, (2) the relevant disclosure requirements, (3) disclosure gaps, and (4) whether the needed data are readily available. Further, entities should establish technical and business requirements for data and systems development in addition to identifying relevant controls and noting any changes that may need to be made to them. This phase is expected to result in an implementation roadmap with key milestones, dates, and resource requirements.
- Phase 3: Implementation — Entities should develop accounting and disclosure policy documentation, including estimation methods, key judgments, use of practical expedients or elections, and the definition of selling expenses. Entities should also develop an outline of their DISE disclosures and perform a dry run, modify the close process, and design and implement any needed changes to systems, processes, and controls.
- Phase 4: Adoption and Post-Adoption —Entities should monitor the results of initial implementation activities to determine whether they need to make any changes to comply with the disclosure requirements as of the adoption date. As part of this determination, entities should evaluate whether IT systems, controls, and policies are operating as intended and assess any new transactions or changes in facts and circumstances through the end of the reporting period. During the post-adoption phase, entities are encouraged to continually monitor their compliance with the standard, including when facts and circumstances change and new accounting standards are issued that update the DISE disclosure requirements. Entities may need to dedicate resources to ensuring compliance with the DISE standard on an ongoing basis.
See Deloitte’s March 13, 2026, Accounting
Spotlight for additional considerations related to
implementing the DISE standard, including suggested “dos and don'ts,”
key actions in each phase, important decisions, and internal controls
over financial reporting.
Selling Expenses
FAQ 50
[Amended
September 30, 2026]
Question
What are the disclosure requirements for selling
expenses on an annual and interim basis?
Answer
An entity is required to present a separate total
amount of its selling expenses in a manner similar to the
presentation of research and development and advertising expenses.
This disclosure must be provided outside the tabular disclosure of
relevant expense categories and is required in both interim and
annual periods.
An entity’s definition of selling expenses only
needs to be disclosed annually or if an entity changes the
definition of selling expenses on an interim basis. See FAQ 54 for
further details on recasting requirements for selling expenses.
Selling expenses must be separately disclosed even if an expense
caption is not presented for “selling, general and administrative
expenses.” See FAQ 40 for a
summary of all the disclosure requirements on an interim and annual
basis.
References: ASC 220-40-50-35 and 50-36 and
paragraph BC118 of ASU 2024-03
FAQ 51
Question
How should the term “selling expenses” be defined,
and what costs should be included in such expenses?
Answer
The ASU does not define selling expenses. An entity
will determine what constitutes selling expenses and disclose the
definition annually or when a change in the definition is made on an
interim basis (see FAQ 54). Selling expenses should include only items that
are presented as expenses in the income statement.
In paragraph BC119 of the ASU, the FASB states that
it expects “entities will arrive at conclusions about which expenses
to classify as part of their selling function that are specific to
their facts and circumstances and their own tailored definition of
selling.” The FASB also acknowledged that “management has broad
latitude in defining selling expenses, including whether selling
expenses include or exclude fulfillment costs, costs associated with
physical sales locations, websites, allocation of management
expenses, and many other reasonable judgments as made by
preparers.”
References: ASC 220-40-50-36 and paragraph BC119
of ASU 2024-03
FAQ 52
[Amended
September 30, 2026]
Question
If a company presents “sales and marketing,”
“advertising and marketing,” or “selling expenses” as an expense
caption in its income statement, is the company still required to
quantitatively disclose the selling expenses separately?
Answer
It depends. In paragraph BC119 of ASU 2024-03, the
Board notes that many entities already present categories such as
“sales and marketing” or “advertising and marketing” separately from
“general and administrative” expenses in their income statements.
Accordingly, if an entity’s presentation of “sales and marketing” or
“advertising and marketing” is aligned with management’s definition
of “selling expenses,” separate quantitative disclosure of selling
expenses is not required. However, if the existing presentation is
not aligned with the entity’s definition of selling expenses,
separate disclosure would be required. In addition, if selling
expenses are not already defined in the financial statements, the
entity should disclose how it defines selling expenses (see FAQ 44).
Further, see FAQ
47 for more information about recasting in instances in
which a company changes how it defines selling expenses.
Similarly, unless selling expenses is a relevant
expense caption because an entity presents it as a separate caption
on the face of the income statement, the entity is not required to
further disaggregate the disclosed amount of selling expenses into
the required expense categories. The disclosure requirements in ASU
2024-03 do not supersede the advertising disclosure requirements in
ASC 720-35-50-1.
ASC 220-40-55-25
provides an example related to an entity’s disclosure of selling
expenses that were determined in ASC 220-40-55-22. In this example,
advertising and marketing disclosed as a caption on the face of the
income statement were not a relevant expense caption because they
did not include any of the relevant expense categories specified in
ASC 220-40-50-6 (including those referenced in ASC 220-40-50-10 and
50-11). Specifically, ASC 220-40-55-25 states:
ASC 220-40
55-25 In addition to
the tabular format disclosure illustrated in
paragraph 220-40-55-24, Entity X also must
disclose its selling expenses and how it defines
selling expenses in accordance with paragraphs
220-40-50-35 through 50-36.
Selling Expenses
During the years ended December 31, 20X4,
20X3, and 20X2, the entity defined selling
expenses to be the same as its advertising and
marketing expenses, which are presented on the
face of its consolidated income statement. The
entity’s advertising and marketing expenses
include costs incurred for advertising, market
research, and business development.
References: ASC 220-40-50-35 and 50-36, ASC
220-40-55-25, and paragraphs BC119 and BC120 of ASU
2024-03
FAQ 53
Question
Can an entity change its definition of selling
expenses?
Answer
Yes. An entity should disclose when a change in the
definition of selling expense occurs — in either an interim or
annual reporting period. See FAQ 54 for requirements related to
recasting of selling expenses.
Reference: Paragraph BC121 of ASU
2024-03
FAQ 54
Question
Should an entity recast prior-period selling
expenses if it changes the definition of selling expenses in the
current period?
Answer
Yes. An entity should disclose any changes in the
definition of selling expenses in the interim or annual reporting
period in which the change occurs. In the period in which the
definition changes, the entity is required to recast prior-period
selling expenses disclosed in the current-period financial
statements unless it is impracticable to do so. If it is
impracticable to recast prior periods, the entity should disclose
that fact and explain why. Further, paragraph BC124 of ASU 2024-03
notes that a change in the definition of selling expenses does not
represent a change in accounting principle under ASC 250, since it
represents a change in the display of a disclosure and not a
presentation, measurement, or recognition change. Therefore, in such
cases, a preferability assessment would not be required under ASC
250.
See FAQ 43 for more information about recasting
considerations.
References: Paragraphs BC121 and BC124 of ASU
2024-03
FAQ 55
Question
Can contract costs, such as costs of obtaining and
fulfilling a contract under ASC 340-40, be included in selling
expenses?
Answer
It depends. The determination of which costs
qualify as selling expenses requires careful consideration of costs
that are within the scope of ASC 340-40. See Chapter 13
of Deloitte’s Roadmap Revenue Recognition for
GAAP recognition and presentation considerations related to contract
costs.
Selling expenses should only include items that are
presented as current-period expenses in the income statement. Costs
capitalized during the current period should not be included in
selling expenses; however, the amortization of the previously
capitalized costs can be included if such amortization is part of
the entity’s definition of selling expenses.
References: ASC 220-40-50-36 and paragraph BC57
of ASU 2024-03
FAQ 56
Question
Can consideration payable to a customer under ASC
606 that is treated as a reduction of revenue (i.e., an incentive)
be included in selling expenses?
Answer
No. Paragraph BC116 of ASU 2024-03 states that the
Board “intends selling expenses to include only items that are
presented as expenses in the income statement.” Accordingly,
incentive payments that are treated as a reduction of revenue should
not be included in selling expenses since selling expenses should
only include amounts that are presented as expenses in the income
statement.
References: ASC 220-40-50-36 and paragraph BC116
of ASU 2024-03
Interim Disclosures
FAQ 57
Question
Does ASU 2024-03 apply to interim periods?
Answer
Yes. ASU 2024-03 applies to both annual and interim
periods.
References: ASC 220-40-50-3 and paragraph BC131 of ASU
2024-03
FAQ 58
Question
Do interim disclosures need to be provided for both
the quarter-to-date (QTD) and year-to-date (YTD) interim reporting
periods?
Answer
Yes. ASU 2024-03 requires DISE disclosures for each
interim reporting period. An entity that is reporting both QTD and
YTD amounts within its interim reporting is expected to apply the
ASU to both the QTD and YTD interim reporting periods.
References: ASC 220-40-50-3 and paragraph BC131 of ASU
2024-03
FAQ 59
Question
Could the relevant expense captions in interim
periods differ from those in annual periods?
Answer
Yes. If interim financial statements are condensed
and, therefore, the expense captions presented on the face of the
income statements in the interim and annual periods differ, there
could be different relevant expense captions in interim and annual
reporting periods.
References: ASC 220-40-50-5 and paragraph BC129 of ASU
2024-03
Effective Date and Transition
FAQ 60
[Amended
September 30, 2026]
Question
What is the effective date of ASU 2024-03 for
PBEs?
Answer
ASU 2024-03 is effective for all PBEs for fiscal
years beginning after December 15, 2026, and interim periods within
fiscal years beginning after December 15, 2027. The ASU does not
provide a delayed effective date for certain PBEs, such as emerging
growth companies (EGCs).
Reference: ASC 220-40-65-1
FAQ 61
Question
Is early adoption of ASU 2024-03 permitted?
Answer
Yes, early adoption is permitted.
Reference: ASC 220-40-65-1
FAQ 62
Question
What are the transition requirements related to
adopting ASU 2024-03?
Answer
Entities may apply the ASU either (1) prospectively
to reporting periods after the effective date or (2) retrospectively
to any or all prior periods presented in the financial statements.
See FAQ 64 for
discussion of retrospective adoption.
Reference: ASC 220-40-65-1
FAQ 63
[Added
September 30, 2026]
Question
When an entity elects the prospective transition approach upon adoption,
are comparative disclosures required for interim periods beginning
before the standard’s effective date?
Answer
No. An entity that elects the prospective approach is not required, but
is permitted, to provide comparative disclosures for reporting periods
beginning before the standard’s effective date. For example, an entity
with a calendar year-end that adopts ASU 2024-03 in its 2027 annual
period and in 2028 for interim periods is not required to provide
comparative disclosures for 2027 interim periods in the 2028 interim
financial statements.
Reference: ASC 220-40-65-1
FAQ 64
Question
What are the presentation requirements for entities
that elect the retrospective approach upon transition?
Answer
If an entity elects the retrospective approach upon
transition, it may provide disclosures for some, but not all,
comparative periods upon adoption. In paragraphs BC156 and BC157 of
ASU 2024-03, the FASB acknowledges that many entities may not have
all comparative-period information necessary to restate all
comparative periods. Therefore, the Board permits disclosures for
some but not all comparative periods, expecting this will enhance
decision-usefulness for investors without imposing significant costs
on entities that may have information available for some, but not
all, comparative periods.
References: Paragraphs BC156 and BC157 of ASU 2024-03
Interaction With Other Standards
FAQ 65
Question
How do the requirements of ASU 2024-03 differ from
the significant segment expense reporting requirements in ASC
280?
Answer
Companies are required to disaggregate expense
information under both ASU 2024-03 and the segment reporting
requirements in ASC 280, but they must do so in fundamentally
different ways. ASC 280 prescribes a management approach, requiring
companies to disclose significant segment expenses by reportable
segment only if those expenses are regularly provided to the chief
operating decision maker and included in each reported measure of
segment profit or loss. Accordingly, under ASC 280, the
identification and presentation of segment expenses are based on how
management internally views and uses the information on a reportable
segment basis. In contrast, ASU 2024-03 requires companies to
disclose disaggregated information about specific natural expense
categories within relevant expense captions, regardless of how
management reviews expenses. That is, ASU 2024-03 does not use a
management approach, instead focusing on the underlying nature of
expenses and the required expense categories. As a result, the
categories, types, and amounts of expenses presented in the tabular
disclosures on a consolidated basis under the ASU will most likely
differ from those in disclosures about significant segment expenses
under ASC 280.
If an entity discloses an expense under ASU 2024-03
on the basis of the underlying nature of expenses and discloses a
similar expense with a different definition under ASC 280 on the
basis of management’s approach, the entity may consider providing
additional disclosures to help financial statement users understand
the differences in how the amounts are determined.
For more information about significant segment
expenses under ASC 280, see Chapter 6 of Deloitte’s
Roadmap Segment Reporting.
References: Paragraphs BC150–BC153 of ASU
2024-03
FAQ 66
Question
How do the requirements in ASU 2024-03 differ from
those in IFRS Accounting Standards?
Answer
Currently, IAS 118 requires entities that classify expenses by function to
disclose additional information about the nature of expenses,
including depreciation and amortization expense and employee
benefits expense. However, IAS 1 does not specifically require that
an entity disclose the amounts of the natural expenses that are
included in each caption in the statement of profit and loss.
IFRS 1819 will replace IAS 1 as of annual reporting periods beginning on
or after January 1, 2027. Under IFRS 18, companies have flexibility
in classifying expenses by their nature (such as raw materials or
employee benefits), their function (such as cost of sales), or both.
Entities must consider which approach provides the most useful
information for users of the financial statements, taking into
account key cost drivers and industry practices. However, IFRS 18
requires companies that present operating expenses by function to
disclose in a single note the total amounts for certain expenses by
nature, such as employee benefits, depreciation, impairment losses
and their reversals, and inventory write-downs and their reversals
and amortization. In contrast, ASU 2024-03 is more prescriptive and
requires disaggregation by natural expenses within the notes to the
financial statements for each relevant expense of the income
statement.
The table below
concisely summarizes reporting practices under IFRS 18 in IFRS
Accounting Standards and the FASB’s ASU 2024-03 in U.S. GAAP.
|
IFRS 18
|
ASU 2024-03
| |
|---|---|---|
|
Topic
|
Presentation and disclosure
in financial statements
|
Disaggregation of income
statement expenses
|
|
Link to
accounting standard
| ||
|
Scope
|
Entities applying IFRS
Accounting Standards
|
PBEs applying U.S. GAAP
|
|
Nature
of new requirements
|
Disclosure and income
statement presentation
|
Disclosure only, does not
affect income statement presentation
|
|
Presentation of expenses on the face of the
income statement
|
Required presentation by
either function or nature, or a hybrid
presentation based on most useful information and
industry practice
|
PBEs subject to SEC
regulations are required to present expenses by
function on the face of the income statement
|
|
Required
categories on the face of the income statement
|
Classification as operating,
investing, financing, income taxes, and
discontinued operations categories
|
Not required
|
|
Disclosure of natural expenses in the
footnotes
|
Required for entities that
present expenses by function or hybrid
|
Required for all relevant
expense captions
|
|
Required
natural expense disclosures
|
When included in each
function-based expense presented on the face of
the income statement, disclosure of:
|
When included in each
relevant expense caption presented on the face of
the income statement, disclosure of:
|
|
Selling
expense
|
Not required
|
Disclosure is required in the
footnotes and, on an annual basis, entities are
required to disclose their definition of selling
expenses
|
|
Application method
|
Retrospective (required)
|
Either prospective or
retrospective (optional)
|
|
Effective date
|
Annual reporting periods
beginning on or after January 1, 2027, and interim
reporting periods beginning on or after January 1,
2027. For a calendar year-end, reporting will
begin in an entity’s 2027 first quarter interim
report.
|
Annual reporting periods
beginning after December 15, 2026, and interim
reporting periods beginning after December 15,
2027. For a calendar year-end, reporting will
begin in an entity’s 2027 annual report.
|
|
Early
adoption permitted
|
Yes
|
Yes
|
For additional details on IFRS 18, see Deloitte’s
April 11, 2024, iGAAP in Focus.
References: Paragraphs BC145–BC149 of ASU
2024-03
FAQ 67
Question
Does the disaggregation of income statement
expenses under ASU 2024-03 affect MD&A disclosures?
Answer
It depends. When adopting the ASU, registrants will
need to assess whether any additional disclosures should be included
in MD&A to comply with SEC Regulation S-K, Item
303.20 For instance, since the ASU requires tabular disclosure by
natural expense categories (such as purchases of inventory or
employee compensation) within relevant expense captions in the notes
to the financial statements, registrants should consider whether
discussing these items in MD&A is necessary to provide what Item
303(a) describes as “material information relevant to an assessment
of the financial condition and results of operations of the
registrant.”
References: Paragraphs BC5 and BC66 of ASU
2024-03
Contacts
|
|
Sean May
Audit & Assurance
Partner
Deloitte &
Touche LLP
+1 415 783
6930
|
|
Christine Mazor
Audit & Assurance
Partner
Deloitte &
Touche LLP
+1 212 436
6462
|
|
|
Blair
McCauley
Audit &
Assurance
Managing
Director
Deloitte &
Touche LLP
+1 415 783
4030
|
|
Tony
Goncalves
Audit &
Assurance
Managing
Director
Deloitte &
Touche LLP
+1 202 879
4910
|
|
|
Kathleen
Malone
Audit &
Assurance
Managing
Director
Deloitte &
Touche LLP
+1 203 761
3770
|
|
Katy
Rossino
Audit &
Assurance
Partner
Deloitte &
Touche LLP
+1 978 760
2396
|
|
|
Hannah Higgins
Audit &
Assurance
Senior
Manager
Deloitte &
Touche LLP
+1 617 960
8676
|
|
Jessica
Lievanos
Audit &
Assurance
Senior
Manager
Deloitte &
Touche LLP
+1 714 436
7283
|
Footnotes
1
FASB Accounting Standards Update (ASU)
No. 2024-03, Disaggregation of Income Statement
Expenses.
2
For titles of FASB Accounting Standards
Codification (ASC) references, see Deloitte’s “Titles of Topics and
Subtopics in the FASB Accounting Standards
Codification.”
3
On January 6, 2025, the FASB issued ASU
2025-01, which clarifies the effective date of ASU
2024-03 with respect to interim periods.
4
SEC Regulation S-X, Rule 3-05,
“Financial Statements of Businesses Acquired or to
Be Acquired.”
5
SEC Regulation S-X, Rule 3-09,
“Separate Financial Statements of Subsidiaries Not
Consolidated and 50 Percent or Less Owned
Persons.”
6
SEC Regulation S-X, Rule 3-14,
“Special Instructions for Financial Statements of
Real Estate Operations Acquired or to Be
Acquired.”
7
SEC Regulation S-X, Rule 5-03, “Statements
of Comprehensive Income.”
8
Last in, first out and first in, first
out.
9
Applies to all natural expense categories
within an expense caption that contains expense amounts
related to inventory within the scope of ASC 330. See FAQ
20.
10
IAS 19, Employee Benefits.
11
SEC Regulation S-X, Rule 9-04, “Statements
of Comprehensive Income.”
12
FASB Accounting Standards Update No. 2025-06, Targeted
Improvements to the Accounting for Internal-Use
Software.
13
ASC 220-40-50-21(n) is added
by FASB Accounting Standards Update No. 2025-10,
Accounting for Government Grants Received by
Business Entities. The amendments in ASU
2025-10 are effective for all PBEs for annual
reporting periods beginning after December 15,
2028, and interim reporting periods within those
annual reporting periods.
14
ASC 220-40-50-21(o),
50-21(p), and 50-21(q) are added by FASB
Accounting Standards Update No. 2026-02,
Environmental Credits and Environmental Credit
Obligations. The amendments in ASU 2026-02 are
effective for all PBEs for annual reporting
periods beginning after December 15, 2027, and
interim reporting periods within those annual
reporting periods.
15
See footnote 14.
16
See footnote 14.
17
When the cost-incurred basis is applied, (1)
changes in inventory and (2) other adjustments and
reconciling items are separately disclosed, as
described in ASC 220-40-50-32 and 50-33. See FAQ
20 for further discussion.
18
IAS 1, Presentation of Financial
Statements.
19
IFRS 18, Presentation and Disclosure in
Financial Statements.
20
SEC Regulation S-K, Item 303, “Management’s
Discussion and Analysis of Financial Condition and Results
of Operations.”