5.12 Disaggregation of Income Statement Expenses | DART

ASC 210-10 currently contains limited guidance on the presentation of expenses in the income statement. Although Regulation S-X prescribes expense classification requirements, an entity’s income statement expense captions do not provide much insight into the nature of such costs. Investors have consistently asked for additional details about income statement expenses, which they believe are important to understanding a company’s performance and forecasting future cash flows.

Changing Lanes

In July 2023, the FASB issued a proposed ASU that would enhance the disclosure requirements related to income statement expenses. Specifically, the proposal would require public entities to disclose, in a tabular format in the footnotes to the financial statements, disaggregated information about specific categories underlying certain income statement expense line items that are considered “relevant.” The proposal would not change or add to the expense captions that public entities currently present in the income statement.

The FASB tentatively decided to require disaggregation of any relevant expense caption presented on the face of the income statement that contains any of the following expense categories: (1) purchases of inventory, (2) employee compensation, (3) depreciation, (4) intangible asset amortization, and (5) depletion. Other items (which may include expenses, gains, or losses) that may need to be disclosed under existing U.S. GAAP, and that are recorded in a relevant expense caption, would need to be presented in the same tabular disclosure. Public entities would be required to disclose the amount, and a qualitative description of the composition, of other items remaining in relevant expense captions that are not separately disaggregated. In addition, a separate total of an entity’s selling expenses must be disclosed, along with the entity-specific definition of selling expenses.

Under the proposed ASU, all disclosures would be provided on an annual and interim basis except for those related to an entity’s selling expenses, which would only be required annually. The Board has tentatively decided that the new guidance would be effective for all PBEs for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption would be permitted.

For more information about the FASB’s tentative decisions related to its proposal on disaggregation of income statement expenses, see Deloitte’s June 28, 2024, Heads Up.

ASC 210-10 currently contains limited guidance on the presentation of expenses in the income statement. Although SEC Regulation S-X prescribes expense classification requirements, an entity’s income statement expense captions do not provide much insight into the nature of such costs. Investors have consistently asked for additional details about income statement expenses, which they believe are important to understanding a company’s performance and forecasting future cash flows.

Connecting the Dots

Given the additional disaggregation and disclosure requirements in the proposed ASU, companies considering an IPO should ensure that their financial reporting systems are designed to facilitate such disclosures.