A change in U.S. financial reporting is about to give investors a closer look at what sits inside major expense lines.
The change is called FASB expense disaggregation. It comes from Accounting Standards Update 2024-03, or ASU 2024-03, rather than from a new SEC rule. The Financial Accounting Standards Board issued the standard in November 2024, and it will affect public companies reporting under US GAAP.
For investors, the practical result is straightforward: annual reports and quarterly filings should eventually reveal more about the natural costs buried inside broad income statement expenses such as cost of sales, selling, general and administrative expense, and research and development.
When the new disclosures begin
ASU 2025-01 clarified the compliance dates. Public business entities must apply the new annual disclosure requirements for fiscal years beginning after December 15, 2026. Interim disclosures are required for periods within fiscal years beginning after December 15, 2027.
For a calendar-year public company, the first required annual disclosure will cover 2027 and will usually appear in a Form 10-K filed during 2028. Required quarterly disclosures would begin during 2028.
The timing will vary by company. A business with a non-calendar fiscal year could report earlier or later than a calendar-year peer. Companies may also adopt the standard early. That means investors may see early examples before the mandatory dates.
Private companies, not-for-profit organizations, and employee benefit plans are outside the standard’s scope.
What will actually change
This is not an order to redesign the face of the income statement. A company can continue using labels such as “cost of revenue,” “cost of sales,” “SG&A,” or “operating expenses.”
Instead, the added detail will appear in the financial statement footnotes. Companies will provide a table for each relevant expense caption within continuing operations. A relevant caption is one that includes one or more of the categories specified by the standard.
Where applicable, the table will break out:
- Purchases of inventory
- Employee compensation
- Depreciation
- Amortization of intangible assets
- Oil-and-gas depreciation, depletion and amortization, or other depletion expense
Each relevant caption also needs an “other items” residual amount, along with a qualitative explanation of what that remaining amount includes.
A manufacturer’s cost of sales, for example, may show inventory purchases, employee compensation, depreciation, and a remaining other-items balance. A software company’s SG&A disclosure could make its labor cost and acquired-intangible amortization more visible. The numbers will not make companies identical, but they should make many expense lines easier to inspect.
Why these income statement expenses matter to investors
Broad functional labels often hide very different economic models. Two companies can report similar operating margins while carrying very different combinations of labor, materials, facilities, and intangible costs.
The new disclosures can help investors assess labor intensity. Employee compensation is defined broadly and can include cash pay, equity compensation, benefits, pension service cost, and termination-related compensation. That can be useful when evaluating businesses that depend heavily on sales staff, engineers, consultants, store employees, or factory workers.
The disclosures may also improve analysis of inventory and material exposure. A company with a large inventory-purchase component in cost of sales may respond differently to commodity prices, tariffs, supply shortages, or volume swings than a company whose expenses are mainly payroll.
Depreciation and intangible-asset amortization can reveal another layer of operating structure. High depreciation may point to a capital-intensive model. Significant amortization may reflect a history of acquisitions and purchased technology, brands, customer relationships, or other intangible assets.
Selling expenses receive special treatment. Companies must disclose total selling expenses in both annual and interim periods, and define selling expenses annually, or when the definition changes in an interim period. This could help investors distinguish spending aimed at winning revenue from more general overhead inside SG&A disclosure.
What the rule will not solve
FASB expense disaggregation should improve detail, but it will not create perfect comparability.
First, the standard does not force companies to use identical income statement caption names. One issuer may report “cost of revenue,” another “cost of sales,” and another may use several operating expense captions. Investors will still need to understand what each company includes in its own labels.
Second, not every caption receives a new table. The requirement applies only when a caption contains one or more specified categories. A caption made entirely of one required category does not need further disaggregation.
Inventory reporting also permits two approaches. A company may report inventory purchases using a cost-incurred basis or an expense-incurred basis. Those approaches can yield different reported amounts. Companies must apply their selected basis consistently across required categories, and cost-incurred reporting requires reconciliations for inventory changes.
Management may use estimates or methods that reasonably approximate the required amounts. The other-items category also will not provide a universal, line-by-line natural-cost breakdown. It is a residual amount with a qualitative description, not a fully standardized chart of every remaining cost.
Finally, companies can adopt prospectively or retrospectively. Early filings may not provide a complete historical series, making trend comparisons less clean at first.
How to use the disclosures well
Retail investors should start with a simple question: what is really driving this company’s expense base?
Compare the natural-cost composition of cost of sales and SG&A across several years. Watch whether compensation rises faster than revenue. Check whether inventory purchases move with sales or signal pressure from higher input costs. Consider whether depreciation, amortization, or selling expenses are becoming a larger share of revenue.
Small business owners can use the disclosures as outside benchmarks. A public competitor’s mix of labor, inventory, selling costs, and overhead may offer useful context for pricing, staffing, and margin planning. It is not a substitute for private-company data, but it can sharpen the questions management asks.
Structured data should make this research more practical over time. The 2025 US GAAP taxonomy added DISE-related elements, and SEC EDGAR has supported the 2025 taxonomy since March 2025. Still, investors should read the table and the related notes instead of relying only on automated screeners. Issuers may use company-specific extensions, different definitions, and different table designs.
The opportunity is real: FASB expense disaggregation will turn some previously opaque expense captions into more usable research inputs. The best investors will treat the new data as a starting point for understanding a company’s operating model, not as a shortcut for judging it.