FASB has issued Accounting Standards Update (ASU) 2024-03, introducing new requirements for the disaggregation of income statement expenses. This standard, effective for public business entities (PBEs) beginning after December 15, 2026, is designed to enhance transparency and provide stakeholders with deeper insights into a company’s cost structure and performance.
What’s Changing?
ASU 2024-03 responds to investor calls for greater clarity in financial reporting by requiring PBEs to disaggregate certain expense captions into natural expense categories such as inventory purchases, employee compensation, depreciation, and amortization in tabular disclosures within the notes to financial statements. While the face of the income statement remains unchanged, these new disclosures will offer a more detailed view of expenses, supporting better decision making for investors, analysts, and other stakeholders.
Key Provisions
- Tabular Disclosures: PBEs must disaggregate relevant expense captions, providing a clearer breakdown into required natural expense categories, plus “other items” where applicable, in the notes to the financial statements.
- Integrated Reporting: The standard incorporates existing disclosure requirements into the new tabular format and introduces new qualitative disclosures, such as defining selling expenses and how expense reimbursements are presented.
- Scope: The update applies exclusively to PBEs, but private companies should be mindful of potential future relevance, e.g., preparing for an initial public offering or transaction with a strategic buyer that is a publicly traded company.
Why It Matters
Enhanced transparency in expense reporting will help stakeholders better assess company performance and cost structure. Proactive planning will help organizations avoid compliance challenges and maintain trust with investors and regulators.
Read the full article for a deeper dive into the key provisions, as well as important implementation considerations.
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