INSIGHT

What Public Companies Need to Know About ASU 2024-03, Disaggregation of Income Statement Expenses  

Kelly Huang, Will Tanem • November 6, 2026

Services: Technical Accounting

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If you lead finance or accounting for a public company, the footnotes to your income statement are about to become more detailed. ASU 2024-03, Disaggregation of Income Statement Expenses (DISE), requires public business entities (PBEs) to disclose additional information about the nature of the expenses included in the income statement.  

For a calendar-year company, the first disclosures appear in the 2027 Form 10-K, and quarterly disclosures start with the first quarter 2028 Form 10-Q. Because 2027 is the first year in scope, companies need data capture and controls in place starting January 1, 2027. Below, we walk through why the standard was introduced, who it applies to, what you will need to disclose, and steps you can take now to prepare.  

Why ASU 2024-03 Was Introduced  

The standard responds to a consistent message from investors: income statements often present too few expense lines, and the lines that do appear tend to be highly aggregated. Different types of natural expenses are frequently neither presented nor disclosed separately.  

Investors noted that more detailed expense information is important for:  

• Understanding an entity’s performance  
• Assessing an entity’s prospects for future cash flows  
• Comparing an entity’s performance over time and against other entities  

Existing requirements left gaps. ASC 220, the Codification topic covering income statement presentation and comprehensive income, offers limited guidance on how to present expenses in the income statement or disaggregate expense captions, and some line items only appear when certain events occur, such as a goodwill impairment. SEC rules provide more presentation guidance. 

Regulation S-X, for example, requires commercial and industrial entities to present captions such as cost of goods sold, cost of services, and selling, general, and administrative (SG&A) expenses. Still, investors wanted more visibility into what sits inside those captions.  

Who Must Comply  

ASU 2024-03 applies to public business entities. Generally, an entity is a PBE if it meets any of the following criteria:  

• It is required by the SEC to file or furnish financial statements with the SEC, or does so voluntarily, including entities whose financial statements or financial information are required to be or are included in another entity’s filing  
• It is required by the Securities Exchange Act of 1934, or related rules and regulations, to file or furnish financial statements with a regulatory agency other than the SEC  
• It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of, or for purposes of issuing, securities that are not subject to contractual restrictions on transfer  
• It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market  
• It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including footnotes) and make them publicly available on a periodic basis  

ASU 2024-03 does not apply to private companies, not-for-profit entities, or employee benefit plans. The PBE definition reaches further than SEC registrants, however. A private company preparing for an initial public offering meets the definition once it files a registration statement and must include the DISE disclosures in the financial statements in its Form S-1, and an entity whose financial statements are included in another registrant’s filing (for example, an acquired business under Regulation S-X Rule 3-05) is a PBE for purposes of those financial statements.  

Because the ASU has no private company effective date, emerging growth companies cannot use the extended transition relief that otherwise lets them adopt new standards on private company timelines. 

Key Dates and Transition  

• Annual periods: Effective for fiscal years beginning after December 15, 2026  
• Interim periods: Effective for interim periods within fiscal years beginning after December 15, 2027. In January 2025, the FASB issued ASU 2025-01 to clarify this point, because entities with non-calendar fiscal years could otherwise have read the original ASU as requiring first adoption in an interim period rather than an annual period. 
• Transition: Applied prospectively, with the option to apply the guidance retrospectively  
• Early adoption: Permitted  

What You Will Need to Disclose  

• ASU 224-03 requires a new disclosure in the notes to the financial statements, presented in a tabular format on both an annual and interim basis. In that table, you disaggregate each “relevant” expense caption on the face of the income statement. A caption is relevant if it includes one or more of the following five natural expense categories: 
• Purchases of inventory  
• Employee compensation  
• Depreciation  
• Intangible asset amortization  
• Depreciation, depletion, and amortization (DD&A) recognized as part of oil- and gas-producing activities or other types of depletion expenses  

Within the same table, you also disclose:  

• Certain expense, gain, or loss amounts already required to be disclosed under U.S. GAAP  
• Expense reimbursements related to cost-sharing or cost-reimbursement arrangements that are included in a relevant expense caption. A qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated 
• The amount of other items remaining in each relevant expense caption after the categories above are broken out, together with a qualitative description of what those other items consist of 

Separately from the table, you also disclose the total amount of selling expenses and, in annual reporting periods, your definition of selling expenses. 

Identifying Relevant Expense Captions  

If an income statement line includes a mix of the required categories, it must be broken down further in the notes. For example, a line that includes both depreciation and intangible asset amortization requires each amount to be shown separately. A caption is relevant if it contains any of the five categories. For example, an SG&A line that includes employee compensation and depreciation is broken out into employee compensation, depreciation, and other items. If a caption consists entirely of a single category, such as a separate depreciation line, no further breakdown is needed. 

The disaggregation requirements apply only to your own consolidated expenses. You are not required to “look through” equity method investees to disclose their individual expenses.  

Integrating Existing GAAP Disclosures  

Certain expenses, gains, and losses that existing GAAP already requires you to disclose must also appear in the new table when they fall within a relevant expense caption. The ASU sorts these items into two lists:  

• List 1 (ASC 220-40-50-21): Items for which you already disclose both the amount and the income statement caption where it is recorded, such as impairments of intangible and long-lived assets and costs associated with exit or disposal activities. All items on this list belong in the tabular disclosure to the extent they are recorded in a relevant expense caption. 
• List 2 (ASC 220-40-50-22): Items for which you are not currently required to disclose the caption, such as operating lease costs and warranty expense. These items belong in the table only if the amount is recognized entirely in one expense caption that is also a relevant expense caption.  

A Closer Look at the Natural Expense Categories  

Purchases of Inventory  

Amounts disclosed as purchases of inventory must fall within the scope of ASC 330 and, where applicable, industry-specific inventory guidance. You may present them on one of two bases:  

• Cost-incurred basis: Purchases made during the current period at actual cost, including both costs capitalized to inventory and costs directly expensed. Under this approach, you also disclose changes in inventories and other adjustments and reconciling items to reconcile to the total relevant expense captions.  
• Expense-incurred basis: Costs recognized when derecognized from inventory, such as when inventory is sold, plus costs directly expensed. A change-in-inventory reconciliation is not required, but you still need to qualitatively describe the amounts included in other cost of goods sold.  

The choice affects how certain transactions flow through the disclosure. An inventory write-down or change in an excess and obsolescence reserve, for example, is captured in the change-in-inventories line under a cost-incurred basis. Under an expense-incurred basis, it may be included in other cost of goods sold or disaggregated by natural expense category (such as labor and materials), depending on the approach you adopt. If you later switch bases, you must disclose the reason for the change and recast prior-period disclosures unless doing so is impracticable. 

A few scope points are worth noting. Inventory acquired in an asset acquisition may be included, while inventory recognized in a business combination, a joint venture formation, or the initial consolidation of a variable interest entity that is not a business combination is excluded from purchases of inventory and falls into the other items category instead. Items sometimes referred to as inventory but outside the scope of ASC 330, such as environmental credits, should not be included.  

The ASU also offers a practical expedient: when substantially all of an expense caption consists of purchases of inventory, you are not required to disaggregate that caption at all. Instead, you provide a qualitative description of what the caption is made up of, in both interim and annual periods. 

Employee Compensation  

The ASU updates the definition of “employee” in the ASC Master Glossary to align with ASC 718, covering full-time, part-time, temporary, and seasonal employees. For purposes of the disclosure, employee compensation broadly includes cash consideration (including deferred cash compensation), share-based payment arrangements, medical care benefits, pension benefits, postretirement benefits, and nonretirement postemployment benefits, including special or contractual termination benefits. 

In practice, that encompasses wages, salaries, profit-sharing, bonuses, one-time termination benefits, employee stock compensation and share purchase plans, defined contribution and multiemployer plans, and other compensation cost recognized under ASC 710, 712, 715, and 718. One-time employee termination benefits must be disclosed separately in the table when applicable. 

You may elect to include amounts for transactions entered into on behalf of your people, such as subsidized goods or services and other perks. If you do, you must disclose that election, describe the nature of those transactions, and apply the election consistently in both interim and annual reports.  

A practical expedient is also available, but only to banks, savings institutions, and their holding companies that present a “salaries and employee benefits” caption on the face of the income statement to comply with Regulation S-X Rule 9-04. Those entities can use the Rule 9-04 amounts instead of applying the ASU’s definition of employee compensation. 

Depreciation, Amortization, and DD&A  

• Depreciation should be consistent with amounts recorded under ASC 360-10.  
• Intangible asset amortization should be consistent with amounts recorded under ASC 350-30. Amortization of other capitalized assets, such as customer contract acquisition costs, is excluded. Amortization of finance lease right-of-use assets and leasehold improvements under Topic 842 is included in either depreciation or amortization.  
• DD&A of capitalized acquisition, exploration, and development costs recognized as part of oil- and gas-producing activities should be consistent with amounts recorded under ASC 932-360. This category also includes other amounts of depletion expense, such as depletion recognized by mining entities under ASC 930. 

Selling Expenses  

ASU 2024-03 requires you to disclose a separate total of selling expenses in the notes, in a manner similar to the existing disclosures of research and development and advertising expenses. The ASU does not define selling expenses; you determine what they include. The definition is disclosed annually, and in any interim period in which it changes. Only items presented as expenses in the income statement should be included. 

If you change the definition, you also recast prior-period totals under the new definition unless doing so is impracticable. An illustrative disclosure might read: “The entity’s selling expenses include those expenses related to marketing and promotional activities and client relationship management.” 

Other Considerations  

• Interim reporting: The new disclosures apply in both interim and annual financial statements, with two exceptions. The definition of selling expenses is disclosed annually, and in any interim period in which it changes. Items from the two lists of existing GAAP disclosures are included in the interim table only if the underlying standard already requires them at interim periods. If condensed interim statements present different expense captions than annual statements, the captions in the disclosures may differ as well. 
• Consistency: Apply the guidance consistently for all periods presented. If you change how you present the disclosures, disclose the reason in the period of change and recast prior periods for comparability.  
• Expense reimbursements: Disclose reimbursement amounts included in relevant expense captions that relate to cost-sharing or cost-reimbursement arrangements, whether you are receiving the reimbursement from another entity or paying it to one. If a caption is presented net of reimbursements received, you can either disclose the reimbursement separately or disclose the expense categories net of it, and you must describe which natural expense categories the reimbursement relates to. 
• Liability-related expenses: You are not required to disaggregate an expense into the required categories if it relates to an obligation that will be settled in the future with uncertain timing, is based on an estimate of a future expenditure, and is not made up entirely of a single required category. Provisions for losses on contracts, claims and claims adjustment expenses, and asset retirement obligations are examples that qualify. Routine accruals for goods or services already received, including accrued bonuses, vacation pay, and pension obligations, do not. 
• Use of estimates and materiality: The disclosures do not have to be built from transaction-level detail. You may use estimates or other methods that produce a reasonable approximation of the required amounts, and the requirements do not apply to immaterial items. An immaterial category, for example, can be left in other items rather than broken out. 

How ASU 2024-03 Compares With IFRS 18  

Companies with international operations or reporting obligations may also be tracking IFRS 18, Presentation and Disclosure in Financial Statements, which the IASB issued on April 9, 2024, in response to similar investor concerns about the comparability and transparency of performance reporting. IFRS 18 is effective for annual reporting periods beginning on or after January 1, 2027. Its key changes include:  

• A defined structure for the statement of profit or loss, with items classified into operating, investing, financing, income taxes, and discontinued operations categories, plus specified totals and subtotals  
• Disclosure of management-defined performance measures in a single note, reconciled to the most similar IFRS subtotal  
• Presentation of operating expenses by nature, function, or a mix of both  
• Enhanced principles for aggregation and disaggregation based on shared characteristics  

How to Prepare for ASU 2024-03  

The new disclosures draw on data that many companies do not currently capture at the level of detail required. Starting early gives you room to test your approach before the first reporting period. Steps to consider include:  

• Update systems to capture the required data.  
• Confirm data can be collected, such as inventory information, so you can disclose and disaggregate amounts that are allocated across captions, such as depreciation.  
• Establish clear definitions, such as what constitutes a selling expense, as policies grounded in GAAP and your operations.  
• Train your team on the new disclosure requirements.  
• Update internal controls over the financial statement preparation process, including reviewers and the information produced by the entity (IPE) used in the disclosures.  
• Prepare memos or other technical support to share with your auditors.  

“For many companies, the biggest lift with ASU 2024-03 is pulling reliable data from their systems at the level of detail the standard calls for. Companies that start mapping their expense captions and testing their data now can give themselves time to refine their approach, update controls, and work through questions with their auditors well before the first 10-K.” – Will Tanem, Partner and Technical Accounting Group Leader at BPM 

How BPM Can Help  

BPM’s Technical Accounting professionals work with public companies to interpret new standards and translate them into practical reporting processes. Our professionals can help you assess which expense captions are relevant, evaluate inventory presentation bases and available practical expedients, develop selling expense definitions and accounting policy memos, and identify the system and control updates needed to support the new disclosures.  

Contact us to start a conversation about your ASU 2024-03 readiness. Certain readiness services may not be available to companies for which BPM provides audit or other attest services.