ASU 2024-03 Industry Application: A Practitioner Walkthrough

ASU 2024-03 applies to every public business entity, but the disclosure work looks very different depending on your income statement structure. A manufacturer disaggregating cost of goods sold faces entirely different data gaps than an insurer wrestling with deferred acquisition costs or a SaaS company deciding whether capitalized software amortization counts as intangible asset amortization.

This walkthrough maps the standard's five required expense categories to the income statement structures of the industries where implementation is most complex, then gives you the sequencing and pitfalls you need to get audit-ready before the first required annual filing in fiscal year 2027.

Key takeaway: The challenge with ASU 2024-03 is not understanding what the standard says. It is building the data capture, allocation methodology, and internal controls to produce the tabular disclosure consistently, quarter after quarter, for your specific industry.

For a full explanation of what DISE requires and who it applies to, see our DISE disclosure requirements reference guide. For the effective date calendar and ASU 2025-01 clarification, see our ASU 2024-03 effective date compliance calendar.

What ASU 2024-03 Requires (The Short Version)

FASB issued ASU 2024-03 on November 4, 2024, adding ASC 220-40 to US GAAP. It requires public business entities (PBEs) to disclose, in a standardized tabular footnote, the amounts of five natural expense categories embedded within each "relevant expense caption" on the face of the income statement.

The five required categories are:

1. Purchases of inventory
2. Employee compensation
3. Depreciation
4. Intangible asset amortization
5. Depreciation, depletion, and amortization (DD&A) recognized as part of oil-and-gas-producing activities, or other depletion expense

A "relevant expense caption" is any income statement line item within continuing operations that contains at least one of those five categories. If your cost of goods sold includes employee compensation and depreciation, COGS is a relevant caption and you must disaggregate both components within it.

Private companies, not-for-profit entities, employee benefit plans (ASC 960/962/965), broker-dealers (ASC 940), investment companies (ASC 946), and registered insurance separate accounts (ASC 944) are all scoped out, per FASB's project page and confirmed by PwC's Financial Statement Presentation guide.

Effective dates: annual periods beginning after December 15, 2026 (calendar-year 2027 annual reports); interim periods beginning after December 15, 2027 (Q1 2028 for calendar-year filers). Early adoption is permitted.

Step 1: Identify Your Relevant Expense Captions

Before any industry-specific work, every PBE must map its own income statement. The process is the same regardless of sector.

1. List every expense line item presented on the face of the income statement within continuing operations.
2. For each line, ask: does this caption contain purchases of inventory, employee compensation, depreciation, intangible asset amortization, or DD&A?
3. Any caption where the answer is yes is a relevant expense caption and triggers the full tabular disclosure.

The answer is rarely obvious. A SaaS company's "cost of revenue" may contain employee compensation (support engineers), depreciation (servers), and intangible asset amortization (acquired technology). All three must be broken out. A retailer's "selling, general and administrative" line almost certainly contains employee compensation and depreciation. Both are relevant.

This scoping step is where most companies underestimate the work. As RSM notes, "many public companies do not currently capture expense data at the level of granularity required, nor do they have repeatable processes, controls or ownership models in place to support consistent disclosure."

Industry Application: Insurance

The core challenge for insurers is deferred acquisition cost (DAC) amortization and the separate account exclusion.

Registered insurance separate accounts under ASC 944 are entirely scoped out of ASU 2024-03. That exclusion is clean. The complexity sits in the rest of the insurer's income statement.

For DAC amortization, the Deloitte DART FAQ gives the right starting point: "when applying ASU 2024-03, an entity should first assess whether the expense caption containing DAC includes any of the five required expense categories." DAC amortization itself is not one of the five required categories. But if the expense caption that contains DAC also contains employee compensation or depreciation, those components must be disaggregated.

Practical steps for insurers:

• Map each income statement caption (policyholder benefits, DAC amortization, underwriting expenses, operating expenses) against the five required categories.
• Confirm which captions are relevant. Policyholder benefit expense typically does not contain any of the five categories and may not be a relevant caption at all.
• For underwriting and operating expense captions that do contain employee compensation and depreciation, build the allocation methodology to split those costs out of the blended caption.
• Document the separate account exclusion explicitly in your scoping memo so auditors have a clear trail.

The pitfall: assuming DAC amortization is automatically in scope. It is not one of the five required categories. The question is always whether the caption containing DAC also contains a required category.

Industry Application: Manufacturing and Retail

Manufacturing and retail face the broadest relevant caption exposure and the most complex policy election.

For a manufacturer, cost of goods sold almost certainly contains all of: purchases of inventory, employee compensation (direct labor), and depreciation (plant and equipment). SG&A adds employee compensation and possibly depreciation. R&D, if separately presented, adds employee compensation. Every one of those captions is relevant.

The cost-incurred vs. expense-incurred election is most consequential here. Under the cost-incurred approach, you disclose the cost of inventory purchased in the period, regardless of when it flows through the income statement. Under the expense-incurred approach, you disclose only the inventory cost that was actually expensed (i.e., recognized in COGS) during the period. For manufacturers with significant work-in-process and finished goods inventory, the two approaches can produce materially different numbers. RSM recommends making this election decision during the late 2026 gap analysis phase, before system changes are locked in.

Practical steps for manufacturers and retailers:

1. Run a full caption-by-caption scoping analysis. Expect COGS, SG&A, and R&D to all be relevant captions.
2. Decide the cost-incurred vs. expense-incurred election for inventory purchases. Document the rationale.
3. Assess whether your ERP captures direct labor, overhead, and depreciation at the cost-center level needed to split them by income statement caption. Most do not without chart-of-accounts changes.
4. Design allocation methodologies for shared costs (e.g., a plant manager's salary that flows partly to COGS and partly to SG&A). These must be repeatable and auditable.
5. Update the chart of accounts or add sub-ledger tracking to capture the split.

For retailers, the inventory purchases line is typically the largest number in the table. The data usually exists in the purchasing system, but mapping it to the expense caption rather than the balance sheet requires a deliberate reconciliation step.

Industry Application: Technology and SaaS

The defining question for technology companies is whether capitalized internal-use software amortization qualifies as "intangible asset amortization" under ASU 2024-03.

The standard references intangible asset amortization broadly. Capitalized internal-use software developed under ASC 350-40 is an intangible asset on the balance sheet, and its amortization flows through the income statement. The weight of current practitioner interpretation is that this amortization is in scope as intangible asset amortization, but companies should confirm with their auditors given the absence of explicit FASB guidance on this specific point.

The second complexity is stock-based compensation (SBC). SBC is a component of employee compensation under ASU 2024-03. For technology companies, SBC is often embedded in cost of revenue, R&D, and SG&A simultaneously. Each caption where SBC sits is a relevant caption, and the SBC component must be disaggregated within each. Companies that currently disclose total SBC in a single footnote will need to recut that disclosure by income statement caption.

Practical steps for technology and SaaS companies:

• Confirm with external auditors whether capitalized internal-use software amortization is in scope as intangible asset amortization. Get that position documented before system design begins.
• Map SBC expense by income statement caption. Most equity compensation systems (Carta, Shareworks, etc.) can produce this split, but the data feed to the GL may need to be redesigned.
• For "cost of revenue" captions that include hosting/infrastructure costs: assess whether those costs contain depreciation of owned servers or right-of-use asset depreciation. Both are in scope.
• Inventory purchases are typically not relevant for pure SaaS companies, but hardware-plus-software businesses need to assess this carefully.

For a deeper look at how capitalized software costs interact with ASC 350-40 and the upcoming ASU 2025-06 changes, see our ASC 350-40 practitioner walkthrough.

Industry Application: Oil and Gas

Oil and gas is the only sector with a fifth required expense category: DD&A recognized as part of oil-and-gas-producing activities.

This is not a catch-all depreciation line. It is specifically DD&A arising from oil-and-gas-producing activities under the full-cost or successful-efforts method, plus other depletion expense. For E&P companies, this is typically the largest single expense category on the income statement, and the data to support it generally exists in the reserve accounting system. The disclosure challenge is attribution: which income statement captions contain DD&A, and how much sits in each.

For integrated oil and gas companies with both upstream and downstream operations, the scoping analysis is more complex. Downstream refining operations may not generate DD&A in the oil-and-gas-producing sense, but they do generate depreciation of refinery assets, which falls under the standard depreciation category (category 3), not the DD&A category (category 5).

Practical steps for oil and gas companies:

• Distinguish clearly between DD&A from oil-and-gas-producing activities (category 5) and depreciation of non-producing assets (category 3). These are separate line items in the tabular disclosure.
• Map which income statement captions contain each type. For most E&P companies, the depletion line is already a standalone caption, which simplifies scoping.
• Assess whether employee compensation embedded in lease operating expense or exploration expense captions is captured at sufficient granularity for the tabular disclosure.

Industry Application: Financial Services and Banks

Banks and diversified financial services companies face the shared-service allocation problem more acutely than most sectors.

Banks typically present net interest income, provision for credit losses, non-interest income, and non-interest expense on the face of the income statement. Non-interest expense is almost certainly a relevant caption: it contains employee compensation (the largest line item for most banks) and depreciation of premises and equipment.

The complexity is allocation. A large bank's technology department, HR function, and facilities team serve every business line. Their costs flow into non-interest expense as a blended total. Disaggregating employee compensation and depreciation within that caption requires either a cost-center-level GL structure or a documented allocation methodology.

Expense reimbursements between entities add another layer. Banks with broker-dealer subsidiaries, investment management affiliates, or joint ventures often have intercompany expense reimbursements flowing through relevant captions. ASU 2024-03 gives two options: disclose the reimbursement as a separate line in the table, or disclose the required expense categories net of reimbursement effects. Whichever approach is elected, the entity must also disclose the elected alternative, a qualitative description of the expense categories to which the reimbursement relates, and the presentation method chosen, per the Deloitte DART FAQ.

Note: broker-dealers under ASC 940 and investment companies under ASC 946 are scoped out entirely. But a bank holding company that consolidates a broker-dealer subsidiary must assess whether the consolidated financials are subject to the standard (they are, as a PBE) and how the broker-dealer's expenses are presented in the consolidated income statement.

The "Other Items" Line: What Auditors Will Scrutinize

Every tabular disclosure will include an "other items" line: the difference between the total relevant expense caption and the sum of the separately disclosed categories. The standard requires a qualitative description of what is in that line. It does not require quantification of individual components.

That qualitative description is where SEC comment letter risk concentrates. If "other items" in your SG&A caption is $400 million and your qualitative description says only "other operating costs," expect a comment. SEC staff have historically pushed for specificity in footnote disclosures, and a large, vaguely described "other items" balance is an obvious target.

Best practice: draft the qualitative description as if an analyst will use it to build a model. Name the major categories of costs that sit in "other items" even if you do not quantify them individually. Engage your external auditors on the sufficiency of the description before the first filing.

For more on SEC comment letter risk in disclosure contexts, see our SEC comment letter trends article.

Pre-Adoption Disclosure: What SEC Registrants Must Do Now

ASU 2024-03 is not yet effective, but SEC registrants already have disclosure obligations. The SEC requires registrants to include in current filings:

1. A brief description of the new standard and the date adoption is required and planned.
2. A discussion of the methods of adoption allowed and the method expected to be used.
3. A discussion of the expected impact on financial statements, or a statement that the impact is not yet known or reasonably estimable.
4. Disclosure of other significant matters expected to result from adoption.

Many companies are currently disclosing that the impact "is not yet known or reasonably estimable." That is acceptable now. By mid-2027, SEC staff will expect more specificity. Companies that have completed their gap analysis and scoping work will be better positioned to provide a meaningful pre-adoption disclosure, which in turn reduces comment letter risk.

Prior-Period Recast: The M&A Complication

ASU 2024-03 requires prior periods to be recast for comparative purposes when adopted, unless impracticable. The exception for certain "other items" disclosures under ASC 220-40-50-22 through 50-23 is narrow.

For companies that completed acquisitions, divestitures, or segment restructurings in 2025 or 2026, the recast requirement adds real complexity. If a business was acquired mid-year and its expense data was not captured at the natural-category level, reconstructing that data for the comparative period may be genuinely impracticable. Document that assessment now, not in 2027 when the auditors ask.

Alternatively, FASB permits prospective application: applying the standard only to periods after the effective date, with no recast. Companies with significant M&A history should model both approaches and choose deliberately, not by default.

Implementation Sequencing: The Five-Stage Model

RSM's phased framework reflects how leading organizations are approaching adoption. Adapted for industry-specific application:

The interim disclosure requirement is consistently underestimated. Annual disclosures require the tabular data once a year. Interim disclosures require it every quarter starting Q1 2028. If your allocation methodology relies on a year-end true-up, it will not work for quarterly reporting. Design for the quarterly cadence from the start.

As RSM puts it: "implementing ASU 2024-03 is not just a compliance task but a complex, multiyear transition."

Industry Readiness Checklist

Use this checklist to assess where your organization stands, calibrated to your sector.

All industries:

• Completed caption-by-caption scoping analysis; relevant captions documented
• Assessed current GL/ERP data capture against the five required categories
• Made the prospective vs. retrospective adoption election (or modeled both)
• Drafted pre-adoption disclosure language for current SEC filings
• Engaged external auditors on scoping positions and "other items" description sufficiency
• Identified cross-functional project team (finance, IT, FP&A, internal audit)

Insurance:

• Confirmed which captions contain DAC; assessed whether those captions also contain required categories
• Documented separate account exclusion in scoping memo
• Mapped policyholder benefit captions against the five categories

Manufacturing and retail:

• Made cost-incurred vs. expense-incurred election for inventory purchases
• Assessed ERP cost-center structure for direct labor and overhead split by caption
• Designed repeatable allocation methodology for shared manufacturing costs

Technology and SaaS:

• Confirmed auditor position on capitalized internal-use software amortization scope
• Mapped SBC expense by income statement caption from equity compensation system
• Assessed hosting/infrastructure costs for depreciation components

Oil and gas:

• Distinguished DD&A from oil-and-gas-producing activities (category 5) from other depreciation (category 3)
• Mapped which captions contain each type
• Assessed employee compensation embedded in lease operating expense captions

Financial services:

• Documented intercompany expense reimbursement policy election (gross vs. net)
• Confirmed broker-dealer and investment company subsidiary scope exclusions
• Designed allocation methodology for shared-service costs across non-interest expense

The companies that finish this checklist by the end of 2026 will have a defensible, audit-ready disclosure model before the first required filing. Those that start in 2027 will be building the plane while flying it.