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At the end of July, FASB announced a proposed Accounting Standards Update that would require disaggregated disclosure of certain expense categories. I’ve blogged a few times on CompensationStandards.com that this could be coming – particularly with respect to “human capital”-related expenses. FASB’s announcement says:

The proposed ASU would require public companies to provide detailed disclosure of specified categories underlying certain expense captions in interim and annual periods. It would provide investors with more detailed information about the types of expenses, including employee compensation, depreciation, amortization, and costs incurred related to inventory and manufacturing activities in income statement expense captions such as cost of sales; selling, general and administrative; and research and development.

The amendments in the proposed ASU do not change or remove existing expense disclosure requirements and do not change requirements for presentation of expenses on the face of the income statement. They would require public companies to include certain existing disclosures in the same tabular format disclosure as the other disaggregation requirements set forth in the proposed ASU.

The ASU goes into more detail about what would be required in the notes to financials if it’s adopted:

1. Disclose the amounts of (a) inventory and manufacturing expense, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities (DD&A) included in each relevant expense caption. A relevant expense caption would be an expense caption presented on the face of the income statement within continuing operations that contains any of the expense categories listed in (a)–(e).

2. Disclose a further disaggregation of inventory and manufacturing expense (from 1 above) into the following categories of costs incurred: (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) DD&A. Costs incurred would include those that are either capitalized to inventory or, if not capitalized to inventory, directly expensed (expensed as incurred) during the current period. On an annual basis, an entity would disclose its definition of other manufacturing expenses.

3. Include certain amounts that are already required to be disclosed under existing generally accepted accounting principles (GAAP) in the same disclosure as the other disaggregation requirements.

4. Disclose a qualitative description of the amounts remaining in relevant expense captions or in inventory and manufacturing expense that are not separately disaggregated quantitatively.

5. Disclose the total amount of selling expenses and, on an annual basis, an entity’s definition of selling expenses.

Comments on the proposal are due on October 30th, and FASB will host a public roundtable on December 13th to gather additional feedback. See this blog from Cooley’s Cydney Posner for even more details & background. Cydney also notes that FASB has tentatively decided to move forward with enhanced requirements for segment expense disclosures and that a final ASU could be coming soon on that. John blogged about the proposed changes last fall.

– Liz Dunshee