Investors want more than bottom-line numbers. They also want to understand where a company’s expenses come from and what drives its profitability. However, traditional income statements often group expenses into broad categories, making it difficult to evaluate a company’s underlying cost structure.
To address this lack of visibility, the Financial Accounting Standards Board (FASB) issued ASU 2024-03, requiring public companies to provide more detailed expense disclosures in the footnotes to their financial statements.
What Is ASU 2024-03?
ASU 2024-03 is an accounting standard issued by the Financial Accounting Standards Board (FASB) that requires public companies to provide more detailed information about certain operating expenses in the footnotes to their financial statements. The standard, also known as the Disaggregation of Income Statement Expenses (DISE) guidance, is designed to improve transparency by giving investors greater insight into a company’s cost structure.
Importantly, ASU 2024-03 does not change how expenses are presented on the income statement. Instead, it requires companies to disclose additional details about expense categories such as employee compensation, inventory purchases, depreciation, amortization, and selling expenses in the accompanying financial statement notes.
Who Must Comply with ASU 2024-03?
ASU 2024-03 applies to Public Business Entities (PBEs), including SEC registrants and other organizations that meet FASB’s definition of a public business entity.
The guidance does not currently apply to:
- Private companies
- Not-for-profit organizations
- Employee benefit plans
Although private businesses are not required to comply, many may still benefit from understanding the new disclosure framework. As investors continue to emphasize financial transparency, companies seeking financing, acquisitions, or public market access may choose to adopt similar reporting practices voluntarily.
What Information Must Companies Disclose?
The most significant change introduced by ASU 2024-03 is the requirement to provide a more detailed breakdown of certain expense categories included within operating expenses.
Public companies must disclose information about several natural expense categories when they are included within relevant income statement line items, including:
- Employee compensation – includes salaries, wages, employee benefits, bonuses, payroll taxes, and stock-based compensation recognized during the reporting period
- Inventory purchases – separately identifies the costs incurred to acquire inventory that are included within relevant operating expense categories
- Depreciation – shows the expense associated with the use of tangible assets such as buildings, equipment, furniture, and machinery over their useful lives
- Amortization of intangible assets – reflects the periodic expense recognized for intangible assets, including patents, trademarks, software, and customer relationships
- Other significant operating expenses – provides additional visibility into material operating costs that do not fall within the primary expense categories
Companies must also separately disclose:
- Total selling expenses – Reports the total costs associated with selling products or services, giving investors a clearer view of commercial activities
- Expense reimbursements, when applicable – Highlights reimbursements that offset certain operating costs, helping users better understand the company’s net expenses
- “Other expenses” category – Requires a qualitative explanation of the costs included in any residual “other expenses” line item rather than grouping them without additional context
These disclosures appear in the footnotes to the financial statements, not on the face of the income statement itself, which preserves the existing financial statement presentation while giving investors greater visibility into the components of operating expenses.
For many finance teams, this means evaluating whether current accounting systems can capture expense information at the level of detail required by the new standard. Businesses that begin preparing early will likely face fewer implementation challenges as the effective date approaches.
Why ASU 2024-03 Matters
ASU 2024-03 is designed to give investors a clearer understanding of how companies incur and manage their operating expenses. The Financial Accounting Standards Board (FASB) developed the guidance in response to long-standing investor requests for more detailed expense information, helping users better evaluate a company’s cost structure and financial performance.¹
For public companies, the new standard is more than a compliance requirement. By providing greater transparency into operating expenses, ASU 2024-03 can improve the quality of financial reporting, strengthen communication with investors, and support more informed decision-making.
When Is ASU 2024-03 Effective?
Public companies should begin preparing well before the standard becomes effective. For calendar-year entities:
- Annual reporting: Fiscal years beginning after December 15, 2026 (2027 reporting).
- Interim reporting: Fiscal years beginning after December 15, 2027 (beginning in 2028).
- Early adoption: Permitted.
- Transition: Companies may generally choose either prospective or retrospective application, subject to the guidance.
Although implementation dates may seem distant, many organizations will need time to update systems, processes, and internal controls.
Common Implementation Challenges
Many organizations may discover that their current reporting processes were not designed to capture expenses at the level of detail required by ASU 2024-03.
Common challenges include:
- Limited availability of detailed expense data
- Manual reporting and allocation processes
- Separating functional expenses into natural expense categories
- Allocating employee compensation across departments
- Updating ERP and reporting systems
- Maintaining consistency across reporting periods
Identifying these challenges early allows finance teams to make process improvements before implementation deadlines arrive.
How Accounting Advisors Can Help
Implementing a new accounting standard often requires more than technical guidance. Companies may also need assistance evaluating reporting processes, improving internal controls, and determining whether existing systems can support the required disclosures.
Accounting advisors can perform readiness assessments, identify reporting gaps, recommend process improvements, and help prepare disclosure requirements. This proactive approach can simplify implementation while reducing the risk of reporting issues after the standard becomes effective.
Wahl Street Accountancy Corporation provides accounting advisory and financial reporting support to help public companies prepare for evolving accounting standards, strengthen reporting processes, and navigate implementation with confidence.
The Bottom Line
ASU 2024-03 represents an important step toward greater expense transparency for public companies. Organizations that begin preparing early can strengthen their reporting processes, reduce implementation challenges, and provide investors with clearer insights into their financial performance.
With thoughtful planning and the right accounting support, companies can turn compliance into an opportunity to enhance the quality and transparency of their financial reporting.
Reference
- Financial Accounting Standards Board (FASB). “FASB Issues Standard That Improves Disclosures about Income Statement Expenses.” November 4, 2024. https://www.fasb.org/news-and-meetings/in-the-news/fasb-issues-standard-that-improves-disclosures-about-income-statement-expenses-419833.
