
The Financial Accounting Standards Board (FASB) released an Accounting Standards Update (ASU) on Nov. 4 that improves financial reporting and responds to investor input by requiring public firms to disclose additional information regarding certain expenses in the notes to financial statements in interim and annual reporting periods.
“This project was one of the highest priority projects cited by investors in our extensive outreach with them as part of our 2021 agenda consultation initiative,” noted FASB Chair Richard R. Jones. “We heard time and again from investors that additional expense detail is fundamental to understanding the performance of an entity and we believe that this standard is a practical way of providing that detail.”
During the FASB’s 2021 agenda consultation and other outreach, investors saw that expense information is crucial to understanding a firm’s performance. They examine its prospects for future cash flows and compare its performance over time with that of other firms. They suggested that more granular expense information would help them better understand an entity’s cost structure and forecast future cash flows.
The ASU addresses this feedback by requiring public firms to disclose, in the notes to financial statements, specified information regarding certain costs and expenses at each interim and annual reporting period. Specifically, they must do the following items:
• 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 generally accepted accounting principles or 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.
The ASU amendments are effective for annual reporting periods starting after Dec.15, 2026, and interim reporting periods starting after Dec.15, 2027. Early adoption is allowed. The ASU, as well as other educational materials, is available at www.fasb.org.