ASU-NEW DISCLOSURE REQUIREMENTS ON EXPENSE DISAGGREGATION
On the demand from investors, on November 4, 2024, FASB issued an ASU on the additional disclosures of certain expenses in the notes to financial statements. The aim is to improve financial reporting and provide more detailed, disaggregated information about expenses by public companies during interim and annual reporting periods.
The amendments in this update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted.
MAJOR HIGHLIGHTS
It applies to all public business entities.
These are in addition to the presentation and disclosure requirement of the SEC.
Disclose the amounts of (a) purchases of inventory; (b) employee compensation; (c) depreciation; (d) intangible asset amortization; and (e) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities (or other amounts of depletion expense) included in each relevant expense caption.
Include certain amounts that are already required to be disclosed under current GAAP in the same disclosure as the other disaggregation requirements.
Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively.
Disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses.
No changes are required to income statement preparation -only change in disclosure requirements
Information to be disclosed in tabular format.
This is also in line with disclosure requirements in IFRS 18 which is also effective from 1 January 2027.
SW Point of View:
This update will help in disclosing additional information about specific expense categories in the notes to financial statements during interim and annual reporting periods. It will provide transparency about the component of business expenses and thus guide investors to evaluate the company’s performance and forecast its future cash flows. It will help in better understanding an entity’s cost structure. It will provide creditors, analysts, and market participants with more decision-useful information.
