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FASB Approves Rule Requiring Disclosure of Employee Compensation, and More, in Financial Statements

S.J. Steinhardt
Published Date:
Jun 27, 2024

iStock-826741128 Accounting Standards

The Financial Accounting Standards Board (FASB) voted unanimously to mandate quarterly disclosure of more details in the footnotes of public company financial statements, with the intention of giving investors more insight into companies’ operations, The Wall Street Journal reported.

Those details would include breaking out employee compensation, depreciation of property and equipment, amortization of intangible assets such as trademarks, and inventory purchases in the footnotes of income statements. They will provide more information about the cost of goods sold and selling, and general and administrative expenses for publicly traded companies.

Publicly traded companies will have to provide the amount of employee compensation spending that is included in each expense line item on the income statement. They will also have to put all required expense items, except selling expenses, into a table, along with some expenses they already disclose. This will lengthen the footnotes to their financial statements, but their income statement, on its face, won't change. Separately, companies will need to disclose selling expenses, which are expenses tied to distributing, marketing and selling products or services, along with their reasoning behind that classification.

The requirements are set to go into effect for most companies’ 2027 annual financial reports, and the following year for quarterly reporting, although companies can adopt them early.

Some companies, including IBM, Apple, and Starbucks, urged the FASB to revise the proposal that it issued last July, saying it would be costly to carry out, and deliver little benefit to investors, the Journal reported.

“We have significant concerns about the operability of the proposed standard, the significant cost of compliance, and whether the resulting disclosure will provide additional decision-useful information to users of our financial statements,” said Kathleen McDonald, IBM’s assistant controller, in an October 2023 letter to FASB.

In May, the FASB adjusted the proposed rule to remove subtotals for inventory and manufacturing expenses and replace them with purchases of inventory, in response to companies’ concerns about compliance costs and to provide clearer information for investors. “Effectively, what we did was lessen the burden of the standard as opposed to increase it,” Rich Jones, the board’s chair, said at Wednesday’s meeting.

The rule would have the largest impact on companies across industries of any other FASB project this year, and is likely the highest priority for investors too, Jones said in a December interview.

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