The FASB has finalized ASU 2024-03, or the DISE standard, which requires public companies to break down certain expense categories in the income statement into a detailed and transparent presentation, providing further clarity to investors.

The new standard requires public companies to disaggregate certain relevant expense captions, like COGS, into the following natural expense categories: purchases of inventory, employee compensation, depreciation, intangible asset amortization, DD&A as part of oil- and gas-producing activities, or other depletion expenses. These amounts must be disclosed in a tabular format in the footnotes, while the captions on the face of the income statement will remain the same.

On the surface, this appears to be a simple disaggregation exercise. However, getting this level of detailed expense data will require companies to start preparing well in advance of the effective date. Complex cost structures and disparate financial data will create a challenge for even the most organized accounting teams, who will need to categorize and report on these amounts.

With the new standard going into effect for 2027 annual reports and 2028 interim reports, companies should not underestimate the level of effort to implement this new standard. Standards with long implementation timelines like ASC 606 and ASC 842 took considerable effort from a technical, process, and business stakeholder coordination perspective, which should be a signal to finance and accounting teams to prepare for this standard sooner rather than later. 

That incremental information will allow investors to better understand the components of an entity’s expenses, make their own judgments about the entity’s performance, and more accurately forecast expenses, which in turn should enable investors to better assess an entity’s prospects for future cash flows.

https://www.fasb.org/page/ShowPdf?path=ASU+2024-03.pdf&title=ACCOUNTING+STANDARDS+UPDATE+2024-03%e2%80%94Income+Statement%e2%80%94Reporting+Comprehensive+Income%e2%80%94Expense+Disaggre