Heads up for Accounting: FASB wants more expense detail in financial statements

The Financial Accounting Standards Board (FASB) is requiring public companies to disclose expense details involving employee compensation, depreciation of “property, plant and equipment,” amortization of intangible assets, and costs capitalized to inventory in their income statements.

While it may make financial reports more insightful to your company’s investors, depending on what happens next, your Accounting team may need to adjust its workflows to accommodate the extra work involved.

The January 11 decision is tentative and it’s unclear when the new expense disclosure standards would be finalized as new accounting guidance. No doubt the board will want to hash out transition requirements and consider the additional administrative burden this would impose on businesses.

FASB also tentatively decided to require the disaggregation of residual expenses (e.g., impairments of fixed assets) and costs incurred, as well as selling expenses.

Info on the FASB website indicates that there’ll be more discussion about this disaggregation of income statement expenses project initiative at a future meeting – including whether the proposed guidance should also apply to private companies.

Additional items still to be addressed include the applicability to interim financial statements, cost-benefit considerations and when the period for public comments will be.

Reports indicate a draft proposal could be published by FASB by June or July.

For a helpful, sneak-peek example of an income statement that features the proposed new detail requirements for disclosures, click here.

What counts as a compensation expense?

Under the proposed disclosure standards, the FASB would require a break out of:

• all forms of cash consideration (including deferred cash compensation)
• share-based payments
• medical care benefits
• retirement benefits, and
• post-employment benefits.

As you may have guessed, this includes wages, salaries, Social Security contributions, compensated absences, profit-sharing, bonuses, one-time employee termination benefits, non-retirement post-employment benefits and any compensation cost mentioned in FASB Topic 710.

Other post-retirement benefits that apply include post-employment life insurance and post-employment medical care.

For defined benefit plans covered under FASB Topic 715, employee compensation includes only the service cost component.

As for entities required to disclose per SEC Regulation S-X, Rule 9-04, the board says to follow that definition of employee compensation for presenting salaries and employee benefits.

Going forward, Accounting and Payroll may need to work closely to get this financial reporting and disclosure right so it’ll stand up to an audit.