The Financial Accounting Standards Board (FASB) is taking a scalpel to its still-in-the-works expense reporting standard. If and when the board finalizes the standard, manufacturers and warehouses will likely catch a break.
FASB is now open to excluding manufacturing and inventory expenses as separate expense categories. However — manufacturing purchases such as machinery, equipment and materials would need to be broken out as an expense column.
The board is now pursuing a “single-level disaggregation approach that would (1) remove inventory and manufacturing expenses as a required expense category and (2) add purchases of inventory as a required expense category,” according to its latest meeting minutes. The board responded to concerns from manufacturing companies that breaking out manufacturing and inventory costs would be overly complex and unnecessarily time-consuming.
Joint ventures and other types of cost-sharing and cost-reimbursement arrangements will also likely be granted a measure of accounting flexibility. FASB is considering allowing a single “entity to (1) disclose an aggregate reimbursement amount that is either received or paid as a separate line item in the tabular format disclosure, or (2) map the reimbursement amount to the required expense categories.”
FASB Standard Months — Maybe Years — Away from Finish Line
The board proposed updating its Income Statement–Reporting Comprehensive
Income–Expense Disaggregation Disclosures (Subtopic 220-40) last year. Once finalized, the standard would require public companies to disclose expense details related to employee compensation, depreciation of “property, plant and equipment” and amortization of intangible assets.
Unless FASB makes further changes, the expense standard would requires companies to break out:
- all forms of cash consideration
- share-based payments
- medical care benefits
- retirement benefits, and
- post-employment benefits.
FASB members have sought to update expense reporting requirements within Generally Accepted Accounting Principles since 2021. GAAP doesn’t require cost of goods sold to be disaggregated currently.
