FASB ISSUES Accounting Standards Update 2024-03 INCOME STATEMENT-REPORTING COMPREHENSIVE INCOME - EXPENSE DISAGGREGATION DISCLOSURES (Subtopic 220-40) November 2024
Feedback from investors, lenders, creditors, and other allocators of capital (collectively, “investors”) on the 2021 FASB Invitation to Comment, Agenda Consultation, indicated that disclosure of disaggregated financial reporting information (in the income statement, the statement of cash flows, or the notes to financial statements) should be a top priority for the Board. The Board received similar feedback as part of the 2016 FASB Invitation to Comment, Agenda Consultation. Investors observed that more detailed information about expenses is critically important in understanding an entity’s performance, assessing an entity’s prospects for future cash flows, and comparing an entity’s performance over time and with that of other entities. Investors specifically indicated that more granular information about cost of sales and selling, general, and administrative expenses (SG&A) 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 costs. The Board is issuing this Update to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, SG&A, and research and development). The Board expects that nearly all public business entities will disclose more information under the amendments in this Update about the components of those expense captions than is disclosed in financial statements today. That incremental information will allow investors to better understand the components of an entity’s expenses, make their own judgments about the entity’s performance, and more accurately forecast expenses, which in turn should enable investors to better assess an entity’s prospects for future cash flows. It also will provide contextual information for an entity’s preparation and an investor’s consideration of management’s discussion and analysis of 2 financial position and results of operations (MD&A). Coupled with recent standards that enhanced the disaggregation of revenue and income tax information, the disaggregated expense information required by the amendments in this Update will enable investors to better understand the major components of an entity’s income statement because an investor will be able to reference specific disclosures in the notes to financial statements about revenue, expenses, and income taxes.
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