FASB Adds Standard on Income Statement Expenses

A new standard requiring public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the notes to financial statements was finalized by the Financial Accounting Standards Board (FASB) on Nov. 4.

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“This project was one of the highest-priority projects cited by investors in our extensive outreach with them as part of our 2021 agenda consultation initiative,” FASB Chair Richard Jones said in a statement. “We heard time and again from investors that additional expense detail is fundamental to understanding the performance of an entity, and we believe that this standard is a practical way of providing that detail.”

During the FASB’s 2021 agenda consultation and other outreach, investors noted that expense information is critically important in understanding a company’s performance, assessing its prospects for future cash flows, and comparing its performance over time and with that of other companies. They indicated that more granular expense information about cost of sales and selling, general, and administrative expenses would assist them in better understanding an entity’s cost structure and forecasting future cash flows. Some investors also noted the need for greater disclosure of employee
compensation and benefits costs, according to the FASB.

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The new Accounting Standards Update (ASU), Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), addresses this feedback by requiring public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period, the FASB said.

Specifically, public companies will be required to:

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

In the ASU, the FASB states:

The amendments in this Update improve financial reporting by requiring that public business entities disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. This information is generally not presented in the financial statements today.

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Currently, Topic 220, Income Statement—Reporting Comprehensive Income, does not require the presentation of specific expense captions on the face of the income statement (excluding the U.S. Securities and Exchange Commission [SEC] Sections). That Topic also does not currently require any disaggregation of expense captions. Certain income statement expense captions are required by industry-specific guidance or are triggered when a specific event occurs (for example, goodwill impairment). Other types of expenses, even when not required to be presented separately on the face of the income statement, are required to be disclosed separately in the notes to financial statements. For public business entities subject to the SEC’s presentation requirements, certain articles of SEC Regulation S-X Rule 210, Form and Content of and Requirements for Financial Statements, apply to entities in different industries. The amendments in this Update do not change or remove those presentation requirements or any other current presentation requirements.

The amendments in this Update do not change or remove current expense disclosure requirements. However, the amendments affect where this information appears in the notes to financial statements because entities are required to include certain current disclosures in the same tabular format disclosure as the other disaggregation requirements in the amendments.

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