FASB issues new, long-anticipated income statement expense rules

The Financial Accounting Standards Board published new rules Monday that will require public companies to break out more details related to certain expenses in tabular-style notes to financial statements. 

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The accounting standards update represents the final formal step in the years-long project — known as the disaggregation of income statement expenses or DISE —  by the U.S. accounting standard setter. The rules will be effective for annual reporting periods beginning after Dec. 15, 2026 and for interim or quarterly periods beginning after Dec. 15, 2027, the FASB press release states. 

The change follows other recent updates to accounting standards that underpin Generally Accepted Accounting Principles which have mandated more detailed corporate information in financial reports, including on income taxes and business segments. But the expense rules represent what may be one of the biggest changes for the income statement when it comes to disaggregation, FASB member Fred Cannon said in an interview. 

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

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

Prior to the new accounting standards update, the information provided in income statement expense disclosures is tied largely to Securities and Exchange Commission presentation requirements in Regulation S-X, which governs the form and content of financial statements. In addition, some discreet accounting rules also set targeted rules on the matter. 

“You may have a piece here and a piece there but…the problem with that, from an investor’s standpoint, is that it’s very difficult for investors to forecast on a go-forward basis,” Cannon said.

Now, under the updated standards, companies will break out details about the relevant expense line items in their income statement, such as purchases of inventory, employee compensation, depreciation and intangible asset amortization. While there will be industry-specific effects of how the new rules impact reporting, Cannon expects generally to see more information on cost of sales, cost of goods sold, SG&A and research and development in reports. 

Formally known as the Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures accounting standards update (Subtopic 220-40), the detailed breakouts of expense information that will soon be required could be a relatively big lift for public companies, CFO Dive previously reported.

Nicole Wright, an associate professor of accounting at James Madison University in Harrisonburg, Virginia, previously told CFO Dive that the new rule is going to “take quite a bit of company resources” to amass the data needed for the disclosures. 

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Cannon acknowledged the new rules carry a cost though it will vary “tremendously” by industry. “At the board we’ve always said we recognized this isn’t going to be cheap. For many companies it’s going to be a significant expense but we felt the demand from investors was so strong that we did need to recognize that and move forward with the standard,” he said. 

At the same time, Cannon said that the board took a number of steps to reduce the cost of compliance to report preparers. For example, the board simplified what was initially proposed as a two-step process related to accounting for inventory in the exposure draft, a FASB spokesperson said in an email.