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FASB fine-tunes proposed expense disclosure rule

March 29, 2024

The proposed accounting standards update is one of several initiatives that have been a priority for FASB under the general theme of disaggregation.

Dive Brief:

The Financial Accounting Standards Board is moving to fine-tune some of the details of a proposed accounting standards update that would require companies to break out expenses for employee compensation, depreciation, intangible asset amortization and costs incurred related to inventory and manufacturing activities in notes to their financial statements.

The proposal to update the rules that underpin generally accepted accounting principles — a project known as expense disaggregation disclosures (Subtopic 220-40) — is part of an initiative designed to provide a remedy for income statements that have drawn criticism for being something of a hodgepodge of information that is difficult to interpret. The board is seeking to address concerns raised about the proposal by certain industries and financial report preparers.

At Wednesday’s meeting, the FASB tentatively agreed to provide some relief to banks regarding disclosures they must make related to compensation. They also moved to provide more guidance about when certain liability-related expenses do and do not need to be broken out.

Dive Insight:

When the board advanced the standards update early last year, a board member called it one of the most important projects that the FASB was working on from an investor perspective “by a factor of ten,” CFO Dive previously reported.

One of several initiatives that have been a priority for stakeholders under the general theme of disaggregation, it is expected to be finalized by the end of the year.

For now, the board is working on addressing matters that have been raised about how it should be implemented. For example, at Wednesday’s meeting the board agreed to grant a minor workaround or “practical expedient” to banks regarding how they disclose compensation because they already are required to provide such information in their income statement.

The FASB’s proposed compensation disclosure is “in the same spirit” as that required by the SEC, a FASB spokesperson said in an email.

“Banks would still need to comply with other aspects of the standard. But because banks are already providing SEC-required information about employee compensation on the income statement, they would not be required to also provide that information as a disclosure,” the spokesperson stated.

Separately, the board also tentatively agreed to look to provide more guidance on the instances in which liability-related expenses must be broken out and when they don’t have to be disclosed. In voting for outlining the exceptions, Board Member Frederick Cannon said he hadn’t intended to require breakouts of items like claims, claims adjustment expenses, onerous contracts or management fees.

[CFO Dive]

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