Disaggregation—Income Statement Expenses
Last updated on January 13, 2023. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.
(Sections updated on the date above are indicated with an asterisk *)
The Board continued its initial deliberations by discussing what information entities would be required to provide when disaggregating income statement expenses.
Types of Costs Incurred Provided When Disaggregating Expenses
The Board decided to require that entities disclose (1) costs incurred that are expensed as incurred and (2) costs incurred that are capitalized as inventory (and subject to subsequent measurement requirements in Topic 330, Inventory).
Categories Required—Costs Expensed as Incurred
The Board decided to require that entities disclose the amounts of (1) employee compensation, (2) depreciation of property, plant, and equipment, (3) amortization of intangible assets, and (4) inventory expense included in each relevant expense line item in the income statement. The Board indicated that it will discuss at a future meeting whether other types of depreciation, amortization, or depletion other than depreciation of property, plant, and equipment and amortization of intangible assets should be disclosed.
Categories Required—Costs Capitalized to Inventory
The Board decided that the required categories for the further disaggregation of costs incurred that are capitalized to inventory during the reporting period should be (1) purchases of inventory (which includes all classes of inventory), (2) employee compensation, (3) depreciation of property, plant, and equipment, and (4) intangible asset amortization.
Definition of Employee Compensation
The Board decided that the term employee should be defined consistent with the existing definition in Topic 718, Compensation—Stock Compensation.
The Board decided that the definition of compensation should be as follows:
At a minimum, all forms of cash consideration (including deferred cash compensation), share-
based payments, medical care benefits, retirement benefits, and other postemployment
benefits, given by an entity in exchange for service rendered by employees or for the
termination of employment. This includes wages, salaries, social security contributions,
compensated absences, profit-sharing, bonuses, one-time employee termination benefits,
nonretirement postemployment benefits, and any compensation cost recognized in accordance
with the guidance in Topic 710, Compensation—General. Other postretirement benefits include
postemployment life insurance and postemployment medical care. For defined benefit plans
within the scope of Topic 715, Compensation—Retirement Benefits, employee compensation
includes only the service cost component.
The Board decided to permit entities that apply the presentation requirements in SEC Regulation S-X, Rule 9-04 to use a definition of employee compensation that is consistent with the existing requirements in Rule 9-04 to present salaries and employee benefits.
Disaggregation of Residual Expenses and Costs Incurred
The Board decided to require that any natural expenses (for example, impairments of fixed assets and amortization of film costs) for which an entity must already disclose the amount and caption in the income statement where the expense is recorded should be included in the same tabular format disclosure as any other disclosures stemming from this project.
The Board decided to require qualitative disclosure about other amounts remaining after breaking out the required categories (noted above) for each relevant income statement caption. This disclosure applies to both costs that are expensed and costs that are capitalized to inventory.
Selling Expenses
The Board decided to require that all business entities disclose selling expenses and provide the accounting policy disclosure in paragraph 235-10-50-1 to describe how the entity has determined what expenses are classified as selling expenses.
Presentation or Disclosure
The Board decided the additional disaggregated information may be disclosed in the notes to financial statements.
Example Expense Disaggregation
To assist stakeholders in understanding the Board’s tentative decisions, the FASB staff has included an example income statement with accompanying footnote disclosures that demonstrates the main types of disaggregation that would be required based on the tentative Board decisions made to date in the Disaggregation—Income Statement Expenses project. The example below represents one potential disclosure format, and the required information is subject to change pending future tentative Board decisions.
Assume an entity produces the following income statement under current GAAP:
Example of potential new disclosures:
A summary of the Board’s tentative decisions reached since February 16, 2022 can be found here.
A summary of the Board’s tentative decisions reached before February 16, 2022 can be found here.
Last updated on January 13, 2023. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.
(Sections updated on the date above are indicated with an asterisk *)
Decisions Reached at Last Meeting (January 11, 2023)
The Board continued its initial deliberations by discussing what information entities would be required to provide when disaggregating income statement expenses.
Types of Costs Incurred Provided When Disaggregating Expenses
The Board decided to require that entities disclose (1) costs incurred that are expensed as incurred and (2) costs incurred that are capitalized as inventory (and subject to subsequent measurement requirements in Topic 330, Inventory).
Categories Required—Costs Expensed as Incurred
The Board decided to require that entities disclose the amounts of (1) employee compensation, (2) depreciation of property, plant, and equipment, (3) amortization of intangible assets, and (4) inventory expense included in each relevant expense line item in the income statement. The Board indicated that it will discuss at a future meeting whether other types of depreciation, amortization, or depletion other than depreciation of property, plant, and equipment and amortization of intangible assets should be disclosed.
Categories Required—Costs Capitalized to Inventory
The Board decided that the required categories for the further disaggregation of costs incurred that are capitalized to inventory during the reporting period should be (1) purchases of inventory (which includes all classes of inventory), (2) employee compensation, (3) depreciation of property, plant, and equipment, and (4) intangible asset amortization.
Definition of Employee Compensation
The Board decided that the term employee should be defined consistent with the existing definition in Topic 718, Compensation—Stock Compensation.
The Board decided that the definition of compensation should be as follows:
At a minimum, all forms of cash consideration (including deferred cash compensation), share-
based payments, medical care benefits, retirement benefits, and other postemployment
benefits, given by an entity in exchange for service rendered by employees or for the
termination of employment. This includes wages, salaries, social security contributions,
compensated absences, profit-sharing, bonuses, one-time employee termination benefits,
nonretirement postemployment benefits, and any compensation cost recognized in accordance
with the guidance in Topic 710, Compensation—General. Other postretirement benefits include
postemployment life insurance and postemployment medical care. For defined benefit plans
within the scope of Topic 715, Compensation—Retirement Benefits, employee compensation
includes only the service cost component.
The Board decided to permit entities that apply the presentation requirements in SEC Regulation S-X, Rule 9-04 to use a definition of employee compensation that is consistent with the existing requirements in Rule 9-04 to present salaries and employee benefits.
Disaggregation of Residual Expenses and Costs Incurred
The Board decided to require that any natural expenses (for example, impairments of fixed assets and amortization of film costs) for which an entity must already disclose the amount and caption in the income statement where the expense is recorded should be included in the same tabular format disclosure as any other disclosures stemming from this project.
The Board decided to require qualitative disclosure about other amounts remaining after breaking out the required categories (noted above) for each relevant income statement caption. This disclosure applies to both costs that are expensed and costs that are capitalized to inventory.
Selling Expenses
The Board decided to require that all business entities disclose selling expenses and provide the accounting policy disclosure in paragraph 235-10-50-1 to describe how the entity has determined what expenses are classified as selling expenses.
Presentation or Disclosure
The Board decided the additional disaggregated information may be disclosed in the notes to financial statements.
Example Expense Disaggregation
To assist stakeholders in understanding the Board’s tentative decisions, the FASB staff has included an example income statement with accompanying footnote disclosures that demonstrates the main types of disaggregation that would be required based on the tentative Board decisions made to date in the Disaggregation—Income Statement Expenses project. The example below represents one potential disclosure format, and the required information is subject to change pending future tentative Board decisions.
Assume an entity produces the following income statement under current GAAP:
Example of potential new disclosures:
Cumulative Tentative Board Decisions Reached to Date (since February 16, 2022)
A summary of the Board’s tentative decisions reached since February 16, 2022 can be found here.
Reached Before the Scope and Objective Revision (before February 16, 2022)
A summary of the Board’s tentative decisions reached before February 16, 2022 can be found here.
The staff has prepared this summary for information purposes only. Any Board decisions are tentative and do not change current accounting. Official positions of the FASB are determined only after extensive due process and deliberations.