FASB proposes income statement disclosure changes

The Financial Accounting Standards Board proposed an accounting standards update Monday to give investors more information about a company's expenses. 

The proposal would require public companies to offer more detailed disclosures about particular categories underlying certain expenses during interim and annual periods. The proposed update would give investors more detailed information about the kinds of expenses, such as for depreciation, amortization, employee compensation, and costs related to inventory and manufacturing activities within income statement expense captions such as cost of sales; selling, general and administrative; and research and development.

The amendments wouldn't alter or remove the existing expense disclosure requirements and don't change the rules for presentation of expenses on the face of the income statement. They would require companies to include some of the existing disclosures in the same tabular format disclosure as the other disaggregation requirements outlined in the proposal.

"Feedback from investors on our 2021 Agenda Consultation provided us with a fresh approach to providing more detailed information about a company's expenses, which investors have said is critically important to understanding a company's performance, assessing its prospects for future cash flows, and comparing its performance over time and with that of other companies," said FASB chair Rich Jones in a statement. "As a result, less than 18 months after revising the scope of the project, we've issued this proposed standard that would require companies to provide more information about specific expenses in the notes to financial statements."

FASB chairman Richard Jones

FASB anticipates that nearly all public companies would disclose more information under the proposal about the components of those expense captions than is disclosed in financial statements today. The extra details should allow investors to better understand the makeup of a company's expenses, form their own judgments about a company's performance, and more accurately predict expenses, which should help them better assess a company's prospects for future cash flow. They would also get more contextual information about a company's preparation about the management's discussion and analysis of financial position and results of operations.

The proposed ASU, along with a "FASB In Focus" summary and "Financial Reporting Spotlight: Income Statement Expense Disclosures" overviews and educational videos can be found on FASB's website. FASB is asking for comments on the proposal by Oct. 30.

FASB plans to host a public roundtable on Dec. 13, to get extra feedback on the proposed update. Details about the roundtable, including registration information for both participants and observers, will be announced on the FASB website. People who are interested in participating should send a comment letter and register for consideration. Participants will be chosen to provide a balance of perspectives from investors, preparers, auditors and other stakeholders.