FASB ASU 2024-03 (DISE): Income Statement Disaggregation Disclosure Requirements

FASB ASU 2024-03, Disaggregation of Income Statement Expenses (DISE), is the most significant change to US GAAP income statement disclosures in decades. Issued on November 4, 2024, and codified under new Subtopic 220-40, it requires every public business entity to add a new tabular footnote that breaks out five prescribed natural expense categories embedded within each relevant income statement caption. The face of the income statement stays the same. The footnotes change substantially.

This guide is for CFOs, controllers, and disclosure counsel at public companies who need to understand exactly what the standard requires, which entities it catches, and what implementation work must start now, well before the fiscal-year-2027 mandatory effective date.

Key takeaway: SAB 74 disclosures about DISE are already required in your 2025 and 2026 annual reports. The implementation clock is running now, not in 2027.

What Does ASU 2024-03 (DISE) Actually Require?

DISE requires PBEs to disclose, in a new tabular footnote, the amounts of five natural expense categories embedded within each relevant expense caption on the face of the income statement. This is a footnote-only change. Nothing about how expenses appear on the face of the income statement changes.

At each interim and annual period, the new table must show, for each relevant expense caption:

• Purchases of inventory (amounts within the scope of ASC 330)
• Employee compensation (consistent with ASC 710, 712, 715, and 718, including wages, bonuses, social security contributions, and stock compensation)
• Depreciation (consistent with ASC 360)
• Intangible asset amortization (consistent with ASC 350)
• Depreciation, depletion, and amortization recognized as part of oil-and-gas-producing activities (DD&A), or other depletion expense

The table must also integrate certain existing GAAP disclosures, include an "other items" residual with a qualitative description, and separately disclose total selling expenses. In annual periods only, entities must also disclose their definition of selling expenses.

The FASB's project page includes an illustrative example showing the table structure: rows for each relevant expense caption (e.g., Cost of Sales, SG&A, R&D), columns for each required natural category, and a final "Other" column that reconciles back to the income statement caption total.

What Is a "Relevant Expense Caption" and How Does the Scoping Test Work?

A relevant expense caption is any expense line item presented on the face of the income statement within continuing operations that contains at least one of the five required natural expense categories. Most functional captions, such as cost of sales, SG&A, and R&D, will qualify. So will many natural expense lines.

The scoping test trips up entities that already present expenses by nature. Two rules apply:

1. A natural expense line that contains more than one required category is still a relevant caption. For example, a combined "Depreciation and Amortization" line on the face includes both depreciation and intangible asset amortization. That line is a relevant expense caption and must be further disaggregated in the footnotes to show each category separately.

2. A natural expense line that consists entirely of one required category is NOT a relevant caption. A standalone "Depreciation Expense" line, containing only depreciation, does not require further footnote disaggregation.

As Deloitte's Heads Up notes, income tax expense and interest expense, even if presented on the face, do not contain any of the five natural categories and are therefore excluded from the scoping analysis.

The Five Required Categories: Key Nuances

Purchases of Inventory: Two Acceptable Bases

The final ASU replaced the proposed "inventory and manufacturing expense" category (from the July 2023 exposure draft) with the simpler "purchases of inventory," presented at a single level. But there is still a meaningful accounting policy election to make.

Entities may choose between two bases for this category:

This is an accounting policy election with real P&L timing implications. A manufacturer that capitalizes significant overhead into inventory will show a different purchases-of-inventory figure under the cost-incurred basis than under the expense-incurred basis. The choice must be documented and applied consistently. PwC's In-Depth guide, updated in November 2025, clarified three specific questions (2-5, 2-6, and 2-11) on this category, reflecting ongoing interpretive development more than a year after issuance.

Employee Compensation

Employee compensation is defined consistently with ASC 718 and covers full-time, part-time, temporary, and seasonal employees. It includes wages, bonuses, social security contributions, employee benefits, and stock-based compensation. One-time employee termination benefits must be disclosed separately within the tabular disclosure.

Depreciation and Intangible Asset Amortization

Depreciation is consistent with ASC 360. Intangible asset amortization is consistent with ASC 350. These are separate required categories, which is why a combined D&A line on the face of the income statement triggers further footnote disaggregation.

Integrating Existing GAAP Disclosures Into the Table

The new table is not just the five natural categories. Certain amounts already required to be disclosed under existing US GAAP must also be pulled into the same tabular format.

Two tiers apply:

Always required in the table (regardless of whether they span multiple captions):

• Write-offs of in-process R&D assets acquired in an asset acquisition
• Impairment losses from intangibles or long-lived assets held and used
• Gains and losses from assets classified as held for sale
• Gains and losses from derivative instruments
• Gains and losses from deconsolidation of a subsidiary

Required in the table only if the entire amount sits in a single relevant expense caption:

• Operating lease costs
• Warranty expense
• Gain on troubled debt restructuring
• Foreign currency transaction gains or losses

If an item spans multiple captions, it is not required to appear in the table. Instead, it folds into the "other items" residual for each caption it touches.

The "Other Items" Residual: Not a Boilerplate Catch-All

Every relevant expense caption will have an "other items" amount, which is the difference between the caption total on the income statement and the sum of all separately disclosed categories. Entities must describe qualitatively what is in this residual at every interim and annual period.

This is not a place for vague language. Common items that land in "other items" include liability-related expenses such as pension costs, warranty accruals that span multiple captions, restructuring charges, and operating lease costs that cross captions. SEC staff are likely to scrutinize disclosures that describe "other items" as simply "miscellaneous costs" without any meaningful explanation of their nature.

A defensible "other items" description names the significant components and explains why they are not separately quantified, for example: "Other items in cost of sales consist primarily of utilities, repairs and maintenance, and distribution costs. Operating lease costs are excluded from separate quantification because they are allocated across both cost of sales and SG&A."

Selling Expenses: A Policy Choice You May Never Have Formalized

Entities must disclose the total amount of selling expenses recognized in continuing operations at every interim and annual period. In annual periods only, they must also disclose their definition of selling expenses.

This forces a policy decision. Many companies have never formally documented what counts as a "selling expense" versus a general and administrative expense within their SG&A caption. The definition must be applied consistently, and if it changes, prior periods must be recast (unless impracticable) with disclosure of the reason for the change.

Expense Reimbursements Under Cost-Sharing Arrangements

This sub-rule is easy to miss, particularly for pharma and biotech companies with R&D cost-sharing arrangements.

When an entity receives a reimbursement for expenses included in a relevant expense caption, it must:

1. Disclose the amount of the reimbursement separately.
2. Disclose the required natural expense categories net of any reimbursement effects.

The reimbursement may appear as a separate line item in the table or be netted within the relevant expense category, with separate disclosure of the gross amount. This means a biotech that records a partner reimbursement as a reduction of R&D expense must show both the gross R&D natural expense components and the reimbursement offset.

Can We Use Estimates Instead of Exact Amounts?

Yes. The standard explicitly permits entities to use estimates or other methods that produce a reasonable approximation of the required disclosure amounts. This is a significant practical relief.

As BDO notes, many entities' financial reporting systems do not currently track natural expense categories at the caption level. The FASB acknowledged this and built the estimation safe harbor directly into Subtopic 220-40. But "reasonable approximation" is not a free pass. Entities will need to document their estimation methodology, apply it consistently, and be prepared to explain it to auditors and, potentially, SEC staff.

Effective Dates and Transition Options

ASU 2025-01, issued January 6, 2025, clarified the interim effective date for non-calendar year-end entities, resolving ambiguity in the original ASU 2024-03 language.

Transition choices:

• Prospective: Apply to periods after the effective date. Prior periods do not need to be recast. Simpler operationally, but comparative disclosures will be absent in the first year.
• Retrospective: Recast any or all prior periods presented. Requires collecting natural expense data back to fiscal year 2025 for calendar-year-end companies. The data-collection window for retrospective adopters is already open.

Changes to the manner of presentation within the DISE footnote (for example, switching between the cost-incurred and expense-incurred bases for inventory, or changing the definition of selling expenses) are not changes in accounting principle under ASC 250. That means they do not trigger the full ASC 250 change-in-accounting-principle disclosure machinery, but they do require disclosure of the reason for the change and recasting of prior periods unless impracticable.

Who Does DISE Apply To? Scope Traps to Know

DISE applies exclusively to public business entities (PBEs) as defined in the ASC Master Glossary. Private companies, not-for-profit entities, and employee benefit plans are explicitly excluded.

But the PBE definition is broader than "SEC registrant." It includes:

• Entities whose financial statements are required to be included in another SEC registrant's filing under Regulation S-X 3-05 or 3-09.
• Entities with securities traded on an over-the-counter market.

Two practical traps follow:

1. The M&A pipeline trap. A private company acquired by a public company may need to file Regulation S-X 3-05 financial statements with the SEC. Those statements must comply with DISE even though the company was private when the expenses were incurred.

2. The IPO pipeline trap. A private company preparing an S-1 registration statement must apply DISE in those financials. Companies planning an IPO in 2027 or later need to build DISE compliance into their pre-IPO finance function now.

PwC's In-Depth guide confirms both of these scope conclusions explicitly.

What Your SAB 74 Disclosure Must Say Right Now

This is the gap most DISE coverage ignores: SEC registrants are already required to disclose the expected impact of ASU 2024-03 in their current filings.

Under SAB 74 (codified at ASC 250-10-S99-5), registrants must disclose the effect of a recently issued accounting standard that has not yet been adopted. Because DISE is mandatory for fiscal year 2027, SAB 74 disclosures about it are required in 2025 and 2026 annual reports on Form 10-K and in interim Form 10-Q filings.

The SEC staff expects these disclosures to become progressively more specific as the adoption date approaches. A boilerplate statement that the company "is evaluating the impact" is unlikely to satisfy staff in a 2026 filing. By now, a well-prepared registrant's SAB 74 disclosure should:

• Identify ASU 2024-03 by name and effective date.
• Describe the nature of the new requirements (tabular footnote, five natural categories, selling expenses definition).
• State the entity's planned adoption date and transition method (prospective or retrospective).
• Quantify or qualitatively describe the expected impact on disclosures, including whether system or process changes are required.

For a full treatment of SAB 74 disclosure standards and what the SEC staff expects at each stage of the adoption timeline, see SAB 74 Disclosure Requirements: What the SEC Expects in 2026 Filings.

The May 2026 FASB Roundtable: What It Signals

On May 27, 2026, the FASB held a public roundtable on the implementation of ASU 2024-03, approximately 18 months before the mandatory annual effective date. The FASB does not convene public roundtables on recently issued standards without a reason. This one signals that preparers are already raising substantive implementation questions that the Board is actively monitoring.

The roundtable notice confirms the FASB is tracking real-world implementation pain points. Companies that have not yet started their readiness assessment are behind the curve relative to what the Board is already hearing from early movers.

DISE and Segment Reporting: A Source of Confusion

The DISE table is an entity-level disclosure, not a segment-level disclosure. This distinction matters for companies that already provide natural expense detail at the segment level under ASC 280.

Segment-level natural expense data may help populate the DISE table, but the two disclosures serve different purposes and aggregate at different levels. An entity cannot simply point to its segment footnote as a substitute for the DISE table. Conversely, entities that already track employee compensation, depreciation, and amortization by segment may find that their existing data infrastructure gives them a head start on the entity-level aggregation the DISE table requires.

XBRL Tagging: An Open Operational Question

The SEC will require XBRL tagging of the new tabular disclosure. The specific taxonomy elements and extension requirements for the DISE table are not yet finalized. This creates a real operational uncertainty for SEC filers: the chart-of-accounts and ERP configurations you build to generate the DISE table will also need to map to XBRL tags, and those tags may not be settled until closer to the effective date. Finance teams should flag this dependency in their implementation project plans and monitor SEC taxonomy updates.

Implementation Roadmap: What to Do Before Fiscal Year 2027

Given the lead time required for system changes, BDO urges PBEs to begin the implementation process as soon as possible. PwC agrees: "It is expected that nearly all PBEs will be required to disclose more information about income statement expenses upon adoption of the new standard. Depending on an entity's specific facts and circumstances, new system and process changes may be required as well as coordination across geographies, business segments, and multiple reporting systems."

A practical timeline for calendar-year-end companies:

1. Now (Q3 2026): Complete the data-gap assessment. Map each income statement caption to the five required natural categories. Identify where your GL and ERP do not currently track the required splits. Update your SAB 74 disclosure in the Q2 2026 10-Q to reflect current readiness.

2. Q3-Q4 2026: Make the retrospective vs. prospective transition decision. If retrospective, begin collecting fiscal-year-2025 natural expense data now. Formalize and document the definition of selling expenses and the inventory basis election (cost-incurred vs. expense-incurred).

3. Q4 2026: Configure ERP and GL systems to capture natural expense categories by income statement caption. Develop and document estimation methodologies for categories where exact tracking is impracticable. Coordinate with external auditors on the approach.

4. Q1 2027 (first annual filing): Draft the DISE table and qualitative "other items" descriptions. Align the MD&A results-of-operations discussion with the new footnote to avoid inconsistencies that could draw SEC comment. Review XBRL tagging requirements as finalized.

5. Ongoing: Monitor FASB post-issuance activity (including any further guidance from the May 2026 roundtable) and update disclosures as interpretive guidance develops.

The MD&A alignment point deserves emphasis. The new DISE table will sit in the footnotes alongside your results-of-operations discussion. If management's MD&A narrative describes expenses in terms that are inconsistent with what the table shows, SEC staff will notice. For guidance on keeping the results-of-operations section defensible, see how to write a results-of-operations section that won't draw SEC comments.

FAQ

Does DISE apply to private companies? No. Subtopic 220-40 applies only to public business entities as defined in the ASC Master Glossary. Private companies, not-for-profit entities, and employee benefit plans are excluded. However, a private company preparing an S-1 registration statement or required to file Regulation S-X 3-05 or 3-09 financial statements must apply DISE in those filings.

Does DISE change how expenses are presented on the face of the income statement? No. The standard is purely additive. It adds a new tabular footnote disclosure. Existing income statement presentation requirements under US GAAP and SEC rules are unchanged.

Can we adopt DISE early? Yes. Early adoption is permitted for any annual or interim period. Whether to adopt early depends on your data readiness, the competitive disclosure environment in your industry, and whether early adoption simplifies your transition by avoiding a prospective-only first year.

What if our systems cannot produce exact natural expense amounts? The standard explicitly allows estimates or other methods that produce a reasonable approximation. Document the methodology, apply it consistently, and be prepared to explain it to your auditors.

What is the difference between the cost-incurred and expense-incurred bases for purchases of inventory? The cost-incurred basis captures amounts capitalized to inventory or directly expensed during the period, regardless of when the goods are sold. The expense-incurred basis captures only amounts recognized in cost of goods sold or other expense captions in the period. The choice is an accounting policy election and must be disclosed and applied consistently.

What should our SAB 74 disclosure say about DISE in our 2026 10-K? By the 2026 annual filing, a well-prepared disclosure should name the standard, state the planned adoption date and transition method, describe the nature of the new disclosures, and provide a qualitative (or, if possible, quantitative) assessment of the expected impact on the company's footnotes and the system or process changes underway.