FASB Income Statement Disaggregation ASU 2024-03: 2026 Implementation Guide

If your company is a public business entity, FASB ASU 2024-03 (DISE) will change how you present expense information in your footnotes, and the mandatory effective date for calendar-year companies is the annual period beginning January 1, 2027. That means your fiscal year 2027 annual report, filed in early 2028, must include the new tabular disclosure. But the real work starts now, in 2026, and the FASB's May 27, 2026 public roundtable on DISE implementation confirms that practice questions are surfacing fast.

Existing coverage describes what the standard says. This guide tells you how to implement it: how to identify your relevant expense captions, navigate the two permissible measurement bases for purchases of inventory, use the estimates safe harbor without creating audit risk, define selling expenses, handle SAB 74 obligations in your current filings, and build a realistic timeline to be ready for fiscal year 2027.

Key takeaway: Nearly all PBEs will need new system processes, cross-functional data pulls, and updated footnote templates before the December 15, 2026 annual effective date. Companies choosing retrospective transition need to start collecting 2025 natural expense data today.

What FASB ASU 2024-03 (DISE) Actually Requires

DISE requires every PBE to add a new tabular footnote disclosing the amounts of five specified natural expense categories embedded within each relevant expense caption on the face of the income statement. The standard, codified in the new ASC Subtopic 220-40, was issued November 4, 2024 and is the most significant change to income statement expense disclosure requirements in decades.

The five required natural expense 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

Beyond those five categories, the standard also requires:

• Certain expense, gain, or loss amounts already required under existing US GAAP to be pulled into the same table (not left in separate footnotes)
• A qualitative description of amounts remaining in relevant expense captions that are not separately disaggregated
• Total selling expenses at each interim and annual period, plus an annual definition of selling expenses

One thing DISE does not do: change how expenses are presented on the face of the income statement. Your income statement format stays the same. The new disclosures live entirely in the footnotes.

Effective Dates and Transition: What Applies When

ASU 2025-01, issued January 6, 2025, clarified the interim effective date for non-calendar year-end entities. The confirmed schedule is:

For a June 30 fiscal year-end company, the annual effective date is the period beginning July 1, 2027, with interim periods following in the fiscal year beginning July 1, 2028.

Transition options: Prospective (apply to periods after the effective date only) or retrospective (recast any or all prior periods presented). Retrospective application for a calendar-year 2027 annual report means collecting 2025 and 2026 natural expense data now. If retrospective restatement is impracticable, you must disclose that fact and explain why, mirroring the impracticability exception used in other FASB standards.

Changes to the manner of presentation in the DISE table that result from a change in an election or a change in the definition of a disclosure are not changes in accounting principle within the scope of ASC 250. That gives you flexibility to refine your disclosure approach without triggering the full change-in-accounting-principle machinery.

Step 1: Identify Your Relevant Expense Captions

A relevant expense caption is any expense line on the face of your income statement within continuing operations that contains at least one of the five natural expense categories. In practice, this captures almost every functional caption a PBE presents.

Work through this decision logic for each income statement line:

1. Does the caption appear within continuing operations? If no, DISE does not apply to it.
2. Does the caption contain any of the five natural expense categories (purchases of inventory, employee compensation, depreciation, intangible amortization, DD&A/depletion)? If yes, it is a relevant expense caption and requires disaggregation in the footnote.
3. Does the caption consist entirely of a single natural expense category? If yes, it is not subject to further disaggregation. A standalone "Depreciation expense" line on the face of the income statement does not need to be broken down further in the footnote.

The catch: a caption labeled "Depreciation and amortization" that bundles both depreciation and intangible asset amortization is a relevant expense caption, because it contains more than one required category and must be further disaggregated to separately disclose each.

For most PBEs, the relevant expense captions will include cost of sales (or cost of revenues), SG&A, and R&D. Each of those functional captions almost certainly contains employee compensation and depreciation at minimum.

Step 2: Map the Five Natural Categories to Each Caption

Once you have your list of relevant expense captions, build a mapping matrix: rows are your income statement captions, columns are the five natural expense categories. Each cell gets populated with the dollar amount embedded in that caption.

The hardest mapping challenge is usually employee compensation, because it cuts across every function. Your HR and payroll systems likely track compensation by cost center, not by income statement caption. Pulling that data into functional buckets requires coordination with HR, FP&A, and your ERP team.

For purchases of inventory, the mapping is counterintuitive. This category is not cost of goods sold. Deloitte's Heads Up provides illustrative examples of what may be included:

• Utilities of the production area
• Rents related to the production area
• Indirect labor for quality control, inspection, and supervisory activities
• Distribution and warehousing costs
• Costs to transport goods between company-owned facilities
• Depreciation of production-related capital assets
• Repairs and maintenance on production equipment
• Administrative costs for the manufacturing facility
• Taxes allowable as a deduction under IRC Section 164 (excluding state, local, and foreign income taxes)

Note that the final ASU replaced the proposed category "inventory and manufacturing expense" with the narrower "purchases of inventory," a defined category presented at a single level of disaggregation. This was a deliberate simplification from the exposure draft.

Step 3: Elect Your Inventory Measurement Basis

For relevant expense captions containing amounts within the scope of ASC 330 (Inventory), you must choose between two permissible measurement bases for disclosing purchases of inventory: cost-incurred or expense-incurred. This is an accounting policy election with real downstream implications.

• Cost-incurred basis: Disclose the cost of inventory purchased or produced during the period, regardless of when it flows through the income statement. This aligns with procurement and supply chain data and may be easier to pull from purchasing systems.
• Expense-incurred basis: Disclose the amount of inventory cost that was actually recognized as expense during the period (i.e., what flowed through cost of sales). This aligns more directly with the income statement caption amount.

PwC's November 2025 update to its In depth publication specifically clarified three questions on purchases of inventory (Q2-5, Q2-6, Q2-11), confirming this is the area generating the most implementation questions in practice. The fact that Big-4 firms needed to issue clarifications a full year after the ASU was issued tells you something about the complexity here.

When choosing, consider:

• Which basis your ERP can support with less manual effort
• Whether your auditors have a preference for documentation purposes
• Comparability with peers in your industry (check early adopters' disclosures)
• Whether the cost-incurred basis would produce a number that looks confusingly different from your cost of sales line

Once elected, a change in the basis requires recasting prior periods presented (unless impracticable) and disclosing the reason for the change.

Step 4: Use the Estimates Safe Harbor Correctly

The standard explicitly permits entities to use estimates or other methods that produce a reasonable approximation of the required disclosure amounts. This is a genuine safe harbor for companies whose systems cannot precisely allocate natural expense categories to functional captions.

But "reasonable approximation" is not a blank check. To use it without creating audit risk or SEC comment letter exposure:

1. Document the methodology. Write down the allocation approach (e.g., headcount-based allocation of employee compensation across captions, square-footage-based allocation of facility costs). Auditors will test the reasonableness of the methodology, not just the output.
2. Apply it consistently. Use the same methodology across all periods presented. Inconsistent approximation methods across periods will draw scrutiny.
3. Disclose the use of estimates. The standard does not require disclosure that you used estimates, but the SEC may ask about your methodology in a comment letter if the numbers look unusual. Proactive disclosure of your approximation approach in the footnote reduces that risk.
4. Plan to improve over time. The estimates safe harbor is a bridge, not a permanent solution. Build a roadmap to get your systems to a point where you can produce precise allocations, even if you start with approximations.

The BDO bulletin notes that updating recordkeeping and estimation processes may require significant time, and PBEs should begin the implementation process as soon as possible.

Step 5: Define Selling Expenses

There is no GAAP definition of "selling expenses," and the FASB's requirement to disclose total selling expenses plus an annual definition of what you include is one of the most practically challenging aspects of DISE. The FASB's Basis for Conclusions notes that investors specifically requested separate disclosure of selling expenses because they are currently bundled into SG&A without separate identification.

Approach the definition in three steps:

1. Start with your business model. What activities does your company consider "selling"? Direct sales force compensation? Marketing and advertising? Customer service? Channel partner commissions? Trade promotions? The answer differs by industry and by how your internal management reporting is structured.
2. Look at peer disclosures. Early adopters and companies that already break out selling expenses in their segment reporting will give you a benchmark. Consistency with peers matters for investor comparability.
3. Document and defend. Write a formal definition, get it approved by your controller and CFO, and include it verbatim in your annual DISE footnote. The SEC will read it.

The competitive sensitivity concern is real. Some companies worry that disclosing selling expenses separately will reveal proprietary cost structure information to competitors. The standard does not require more granularity than the total selling expenses figure plus a definition, so the disclosure is less granular than it might feel. But the qualitative description of remaining amounts in relevant expense captions is where the competitive sensitivity risk is higher, and you have more discretion there on how much detail to provide.

Step 6: Migrate Existing GAAP Disclosures Into the New Table

Certain expense, gain, or loss amounts already required to be disclosed under existing US GAAP must be included within the same new tabular disclosure. This is not new information, but it is a change in presentation.

The rule has two tiers:

• Always migrate: Expenses such as write-offs of in-process R&D acquired in an asset acquisition and impairment losses from intangibles or long-lived assets held and used must be included in the table regardless of which captions they appear in.
• Migrate only if entirely in one caption: Items such as operating lease costs (ASC 842), warranty expense, and foreign currency transaction gains or losses must be included in the table only if the entire amount is included in a single relevant expense caption.

For a company with significant stock-based compensation, restructuring charges, or lease costs spread across multiple captions, the migration analysis requires a caption-by-caption review of where each existing disclosure item sits. Build a checklist against ASC 220-40-50-21 through 50-22 and work through it systematically.

For cost-sharing and cost-reimbursement arrangements, the standard requires separate disclosure of the reimbursement amount and the required expense categories net of reimbursement effects.

What Your SAB 74 Disclosure Must Say Right Now

If you have not yet adopted DISE, your current SEC filings must include a SAB 74 disclosure about the expected impact of ASU 2024-03. This obligation applies to every 10-K and 10-Q you file before adoption. For more on SAB 74 mechanics generally, see our SAB 74 disclosure execution guide.

For DISE specifically, your 2026 SAB 74 disclosure should address:

1. The standard's name and issuance date: ASU 2024-03, issued November 4, 2024, as amended by ASU 2025-01.
2. The mandatory effective date: Annual periods beginning after December 15, 2026.
3. Your planned adoption date and transition method: Prospective or retrospective, and whether you plan to early adopt.
4. The expected impact: At minimum, a qualitative statement that the standard will require new tabular footnote disclosures. If you can quantify the incremental disclosures (e.g., the approximate dollar amounts of the five categories), include that. SEC comment letter risk is higher for vague disclosures that simply say "we are evaluating the impact" without any substance, particularly for a standard with a mandatory effective date less than 18 months away.

An SEC EDGAR filing from 2025 shows a real-world example of a Note 2 disclosure citing ASU 2024-03 as a recently issued accounting standard. Use that as a floor, not a ceiling.

The May 2026 FASB Roundtable: What It Signals

The FASB hosted a public roundtable on May 27, 2026 specifically on DISE implementation. This is the first post-issuance public forum on the standard, held approximately 18 months after the ASU was issued, and it signals that practice questions are actively surfacing and that the FASB is listening.

The fact that the FASB convened a formal roundtable rather than simply issuing a staff Q&A suggests the implementation questions are substantive enough to warrant public deliberation. Companies should watch for:

• Narrow-scope amendments or clarifications following the roundtable
• Staff Q&As or educational materials from the FASB's Technical Inquiry System
• Big-4 updates to their implementation guides (PwC already updated its In depth in November 2025; further updates are likely)

PwC's June 2026 podcast "Disaggregated expense disclosures: Don't roll the DISE" confirms that the topic is front-of-mind for practitioners heading into the last full year before mandatory adoption. Monitor the FASB project page for post-roundtable actions.

Scope: Who Must Apply DISE and Who Does Not

The scope catch for private companies is worth flagging explicitly. A private company that is acquired and whose financials must be included in an SEC registrant's filing under Reg S-X 3-05 or 3-09 becomes a PBE for those filed financial statements and must apply DISE. If you are a private company in a sale process or considering an IPO, build DISE into your pre-transaction financial statement preparation now.

DISE and ASU 2023-09 Income Tax Disaggregation: Two Standards, One Disclosure Push

DISE does not stand alone. ASU 2023-09, issued December 14, 2023, requires PBEs to disclose disaggregated income tax information on an annual basis, including:

• Specific categories in the rate reconciliation, with additional detail for items that are 5% or more of the amount computed by multiplying pretax income by the applicable statutory rate
• Income taxes paid disaggregated by federal, state, and foreign, and by individual jurisdictions where taxes paid are 5% or more of total taxes paid
• Income from continuing operations before tax disaggregated between domestic and foreign
• Income tax expense from continuing operations disaggregated by federal, state, and foreign

For calendar-year PBEs, ASU 2023-09 is already effective for annual periods beginning after December 15, 2024, meaning it applies to your fiscal year 2025 annual report. If you have not yet implemented it, that is an immediate priority. DISE follows in fiscal year 2027.

Together, these two ASUs represent a coordinated FASB push toward greater income statement transparency. The implementation infrastructure you build for ASU 2023-09 (cross-functional data pulls, updated footnote templates, auditor coordination) is directly reusable for DISE.

DISE and IFRS 18: What Dual-Reporters Need to Know

IFRS 18, effective January 1, 2027, pursues parallel goals under IFRS: it requires entities to classify income statement items into five categories and disclose "management-defined performance measures." Both DISE and IFRS 18 push toward disaggregation by nature, but they use different frameworks. For more on IFRS 18's specific requirements, see our IFRS 18 practical guide.

For dual-reporters (companies filing both US GAAP and IFRS financial statements), the practical question is whether you can build a single data collection process that satisfies both standards. The answer is partially yes:

• Both standards require employee compensation and depreciation/amortization to be disclosed by nature.
• The definitions and presentation requirements differ enough that you will need separate disclosure templates.
• IFRS 18 requires income statement reclassification into five categories; DISE does not change income statement presentation at all.

Build your DISE data collection process first (the mandatory effective date is the same, January 1, 2027 for calendar-year companies), then map the overlap with IFRS 18 to minimize incremental work.

XBRL Tagging Implications

DISE is codified in ASC Subtopic 220-40, a new subtopic. The new tabular disclosure will require new XBRL/iXBRL taxonomy elements. Companies should:

• Monitor the FASB's XBRL taxonomy update schedule for new 220-40 elements
• Coordinate with your EDGAR filing agent or in-house XBRL team early, since new taxonomy elements require testing before the filing deadline
• Check whether your consolidation or disclosure management tool has already built DISE templates

For context on iXBRL tagging requirements generally, see our cybersecurity iXBRL tagging guide for the process mechanics that apply across disclosure types.

Early Adoption: The Cost-Benefit Analysis

Early adoption is permitted. The case for adopting before the mandatory effective date:

• Smoother implementation: you can work out system and process issues before the mandatory deadline, without the pressure of a live filing
• Investor relations benefit: early adopters signal transparency and may get credit from analysts who have been asking for this data
• Prospective-only transition is available for early adopters, reducing the data collection burden

The case against early adoption:

• You will be disclosing before peers, with less ability to benchmark your disclosure format against comparable companies
• System and process changes take time, and rushing them creates audit risk
• The FASB's May 2026 roundtable may result in narrow-scope amendments that change implementation requirements before the mandatory date

For most companies, the right answer is to complete the implementation readiness assessment now, build the data infrastructure in 2026, and adopt on the mandatory effective date in fiscal year 2027 unless there is a specific investor relations reason to go early.

Implementation Timeline: Working Backward from December 15, 2026

For a calendar-year PBE targeting mandatory adoption in fiscal year 2027:

As PwC notes: "Gaining a thorough understanding of the disclosure requirements and the entity's readiness to adopt the new standard is critical to planning for a successful implementation. Further, entities considering adopting the new standard on a retrospective basis will need to collect data for the comparative years beginning as early as 2025."

FAQ

Does DISE apply to our private subsidiary whose financials are included in our parent's SEC filing under Reg S-X 3-05? Yes. Any entity whose financial statements are required to be included in an SEC registrant's filing under Reg S-X 3-05 or 3-09 meets the ASC Master Glossary definition of a PBE and must apply DISE for those filed financial statements.

Can we change our selling expenses definition after we first adopt DISE? Yes, but you must disclose the reason for the change and recast prior periods presented for comparative purposes, unless impracticable. This is not a change in accounting principle under ASC 250, so the full retrospective adjustment machinery does not apply, but comparability discipline is expected.

Do we need to present the DISE table at the segment level or only at the consolidated level? The standard requires the disclosure at the consolidated level. Segment-level disaggregation is not required, though voluntary additional disclosure is permitted as long as it is not combined with the required disaggregated disclosures in a way that obscures the required information.

What does the FASB's illustrative example of the DISE table look like? The FASB included an illustrative example in the ASU itself, reproduced in PwC's In depth appendix. That example is the closest thing to a safe harbor format and should be the starting point for drafting your disclosure template. The FASB also published a brief in-depth video walking through the illustrative example.

What happens if our systems cannot produce precise natural expense allocations by the mandatory effective date? The standard permits estimates or methods that produce a reasonable approximation. Document your methodology, apply it consistently, and build a roadmap to improve precision over time. Proactive disclosure of your approximation approach reduces SEC comment letter risk.

How does the DISE table interact with our existing stock-based compensation footnote? Employee compensation in the DISE table includes stock-based compensation. You will need to ensure the amounts are consistent between your existing stock-based compensation footnote and the DISE table. The existing SBC disclosure does not need to be migrated into the DISE table unless the entire SBC expense is included in a single relevant expense caption.