Expense Disclosures Get a FASB Makeover with New Standards

The Financial Accounting Standards Board (FASB) is shaking things up with a new set of requirements that promise to bring more transparency to the way companies disclose expenses on financial statements. For professionals managing COGS (Cost of Goods Sold) or SG&A (Selling, General, and Administrative Expenses), this update brings notable changes to consider. For investors and stakeholders, this shift means a deeper, more detailed view into a company’s expenses—driven by the demand for greater financial clarity. The FASB’s goal is clear: to offer a clearer view of a company’s financial health and performance, enabling better communication and analysis.  

Why the Push for Transparency?

Essentially, investors have been telling FASB that “the devil is in the details,” and knowing more about the building blocks of expenses would be invaluable in forecasting a company’s financial health. Investors, lenders, and other financial capital allocators have long sought greater clarity on expenses. Their feedback on FASB’s 2016 and 2021 agenda consultations was loud and clear: they wanted more granular financial information, especially regarding key expense categories. They emphasized that understanding the specifics of expenses —would help them evaluate a company's cost structure, assess future cash flows, and compare performance over time with greater precision.  

Who’s Affected? 

This update is particularly relevant for professionals involved with public business entities and those working in investment. If you’re in financial reporting or investment analysis, understanding these new standards is critical. They’re set to enhance transparency in expense disclosures, giving both reporting professionals and investors a clearer view of a company’s financials. Being prepared and informed will be essential as these changes come into play. 

What’s New in the Requirements? 

The amendments in this Update are all about giving third parties, a deeper dive into expenses by expanding disclosures in the notes to financial statements. Here’s what public entities now need to provide: 

• Expense Breakdown:For each reporting period (both interim and annual), companies must disclose the amounts associated with key expense categories, including: 
  • Purchases of inventory 
  • Employee compensation 
  • Depreciation 
  • Amortization of intangible assets 
  • Depletion related to oil and gas production activities
• Consolidated Disclosure: Companies must now integrate certain amounts already required under GAAP in the same disclosure as the new disaggregation requirements, making all the details accessible in one tabular format. 
• Qualitative Descriptions: Not every part of an expense category will be broken down quantitatively. Instead, companies will provide a qualitative description for the amounts remaining in the main expense captions. 
• Selling Expenses: There’s also a requirement to disclose total selling expenses. And if it’s the annual reporting period, companies will need to define exactly what they consider to be “selling expenses.”

Public entities can still go above and beyond these requirements by voluntarily adding any other details they feel might give investors even more decision-making power. 

Why Is This Update a Big Deal?  

This marks a pivotal moment for financial reporting, setting a new standard for clarity, consistency, and informed investment decisions. It is a long-awaited shift from traditional GAAP practices. This move provides investors with unparalleled insight into major expenses, complementing recent improvements in revenue and tax disclosures. Companies must prepare, as the requirements become effective for annual periods beginning after December 15, 2026, and interim periods after December 15, 2027. Early adoption is encouraged, offering flexibility to implement changes prospectively or retrospectively. 

Dive into the detailed Accounting Standards Update 2024-03. And while you’re at it, don’t miss our regular updates that keep you in the loop on all the latest standards, insights, and changes that matter. Stay sharp, stay informed!