The Financial Accounting Standards Board (FASB) has issued an Accounting Standards Update (ASU) aimed at enhancing the transparency of financial reporting.
The ASU has been issued in response to investors’ demands for more detailed expense information in public companies’ financial statements.
During the FASB’s 2021 agenda consultation, investors emphasised the importance of detailed expense information for evaluating a company’s performance, cash flow prospects, and comparative performance.
A more granular data to better understand cost structures and forecast future cash flows was requested.
FASB chair Richard Jones said: “This project was one of the highest priority projects cited by investors in our extensive outreach with them as part of our 2021 agenda consultation initiative.
“We heard time and again from investors that additional expense detail is fundamental to understanding the performance of an entity and we believe that this standard is a practical way of providing that detail.”
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By GlobalDataIn response, the new standards require public companies to provide additional information about specific costs and expenses in their financial statement notes for both interim and annual reporting periods.
This includes data on inventory purchases, employee compensation, and various forms of depreciation and amortisation.
These details are to be included in the relevant expense captions of financial statements.
Additionally, companies are to report certain amounts already required under current generally accepted accounting principles (GAAP) alongside the new disaggregation requirements.
They must also provide a qualitative description of the amounts not separately disaggregated and disclose total selling expenses, including a definition of such expenses in annual reports.
The amendments introduced by the ASU will take effect for annual reporting periods beginning after 15 December 2026, and interim periods starting after 15 December 2027.
In October 2024, FASB also proposed another ASU to refine the process of identifying the accounting acquirer in business combinations.
