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Summary
Based on investor and other constituent feedback requests for more information about income statement expenses, the Financial Accounting Standards Board (FASB) introduced guidance requiring expanded disclosures for public business entities (as defined in U.S. GAAP) about specific income statement expenses in Accounting Standards Update (ASU) No. 2024-03: Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The effective dates of ASU 2024-03 were subsequently clarified by ASU No. 2025-01, Income Statement—Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date.
This Bulletin summarizes the new disclosure requirements and effective dates in these ASUs, which are collectively referred to as Subtopic 220-40. Subtopic 220-40 does not change income statement presentation requirements but instead expands the disclosure requirements for specific costs and expenses.
Background
The primary goal of Subtopic 220-40 is to provide greater transparency about the components of specific expense categories in the income statement. Previously, U.S. GAAP did not require separate presentation of specific expense captions unless required by industry-specific guidance or upon a triggering event (such as a goodwill impairment).
In finalizing Subtopic 220-40, the FASB affirmed many of the positions set forth in its July 2023 proposal, while also incorporating stakeholder feedback.
Main Provisions
Subtopic 220-40 requires public business entities (PBEs) to provide expanded disclosures about specific expense categories in interim and annual reporting periods, as summarized below:
| MAIN PROVISION | SUMMARY OF DISCLOSURES FOR INTERIM AND ANNUAL REPORTING PERIODS FOR PBES |
|---|---|
Expanded Expense Disclosures | Disclose in a tabular format in the notes to the financial statements amounts recognized in each relevant expense caption in the income statement in continuing operations for:
A relevant expense caption is one that is presented on the face of the income statement and includes any of the expenses listed above. |
Tabular Integration of Existing Disclosure Requirements | Include existing required disclosures for specific expenses, gains, and losses in the newly required tabular format if the expense is reported in a relevant expense caption. Examples include:
However, other existing U.S. GAAP disclosure requirements are required to be disclosed in the tabular format only if the entire expense is included in a single relevant expense caption. Examples include disclosure of operating lease costs, warranty expense, gain on troubled debt restructuring, and foreign currency transaction gains or losses. This requirement does not result in new disclosures; rather, Subtopic 220-40 changes the presentation of these disclosures. For a full listing of the expenses, gains or losses that may need to be included in the tabular format, please refer to ASC 220-40-50-21 through 50-22. |
Expense Reimbursements Included in a Relevant Expense Caption | Disclose expense reimbursements included in any relevant expense captions such as those reimbursed under shared research and development contracts. Any reimbursements may be presented in the tabular format as a separate line item or net within the relevant expense category with separate disclosure. |
Other Items Remaining in Relevant Expense Captions | Include an amount for “other items,” which is the difference between the total relevant expense caption on the income statement and the aggregate of separately disclosed expense categories. Describe qualitatively what is included in this amount. |
Selling Expenses | Disclose the total selling expenses recognized in continuing operations in the notes to financial statements.3 |
A PBE also may provide voluntary disclosures in the tabular format to offer investors decision-useful information, if that information is not combined with the required, disaggregated disclosures.
The disclosure requirements must be applied consistently across all periods presented. If the PBE alters its display of these requirements because of a change in the election of an alternative or a change in the definition of a disclosure, the PBE must:
- Disclose the reason for the change.
- Recast the prior periods presented for comparative purposes, unless impracticable. If it is impracticable to recast the prior periods, the entity must also explain why.
The Appendix provides examples of these new, disaggregated disclosure requirements.
Effective Dates and Transition
The following table summarizes the effective dates and transition for Subtopic 220-40 for public business entities:
| APPLICABLE ONLY TO PUBLIC BUSINESS ENTITIES | |
|---|---|
Effective Date | Annual reporting periods beginning after December 15, 2026. Interim reporting periods within annual reporting periods beginning after December 15, 2027. |
Early Adoption | Allowed. |
Transition | Prospectively in financial statements issued after the effective date. or Retrospectively to any or all prior periods presented in the financial statements. |
Read the full ASU 2024-03 and ASU 2025-1.
The experienced professionals in BDO’s Accounting Advisory practice can help navigate the complexities of applying U.S. GAAP and adopting new accounting guidance.