FASB Raises Bar on Expense Reporting

The Financial Accounting Standards Board (FASB) is calling on publicly traded companies to report employee compensation. And that’s not all.

As we reported a few months back, FASB also wants public firms to report manufacturing and inventory expenses on their financial reports.

The board unanimously (7-0) approved the disaggregation of income statement expenses (DISE) rule. Various expenses will need to be listed in the footnotes of expense lines, starting with 2027 annual reports and 2028 quarterly reports.

DISE reporting details will provide more information about the cost of goods sold and selling, general and administrative expenses for companies,” according to the Wall Street Journal. “Companies will have to provide the amount of employee compensation spending that is included in each expense line item on the income statement. For example, with the cost of goods sold, companies would provide how much of that expense item is spending on salaries, bonuses, share-based payments, and medical and pension benefits.”

The DISE rule’s been in the works since 2022. “Investors have consistently told us that more disclosure of expense detail is critically important to understand a company’s performance, assess its prospects for future cash flows, and compare its performance both over time and with that of other companies,” says the FASB. “We also heard from investors that often there are too few expense lines presented on the face of the income statement, which limits their ability to forecast.”

Expense Reporting Work Heaviest for Manufacturers

DISE requires disclosure of the following amounts within each relevant expense line on income statements:

• inventory and manufacturing expense
• employee compensation
• depreciation, and
• intangible asset amortization.

Manufacturers and warehouses face the most work under the rule. Many companies use multiple systems and will need to combine datasets to provide accurate info.

FASB admits the rule requires “a more detailed breakdown of purchases of materials, labor and other costs related to inventory” that companies have historically needed to report. The board will release rules explaining how companies can comply with the DISE amendments in the coming months.