Disaggregating income statement expenses (ASU 2024-03)

What does ASU 2024-03 require?

A tabular note that takes each relevant expense caption on the face of the income statement and shows how much of it is:

• purchases of inventory;
• employee compensation;
• depreciation;
• intangible asset amortization; and
• depreciation, depletion and amortization recognized as part of oil- and gas-producing activities.

The balance of each caption is shown as other items, with a qualitative description of what it contains. Certain amounts that other parts of GAAP already require to be disclosed are brought into the same table, and companies disclose their total selling expenses and, in annual statements, their definition of selling expenses. The guidance sits in Subtopic 220-40 of the Codification. See IFRS 18 vs the US GAAP income statement.

Who must apply ASU 2024-03?

Public business entities only, as defined in US GAAP, including companies that file with the SEC and some entities with securities traded over the counter. Private companies and not-for-profit entities are not in scope.

What is a relevant expense caption?

Any expense caption presented on the face of the income statement in continuing operations that contains one of the five categories, such as cost of revenue, selling, general and administrative expenses, and research and development. A caption made up only of other expenses, such as an impairment charge shown on its own, is not relevant. Costs capitalized into inventory, such as factory wages and depreciation, can be disclosed either when incurred or when expensed through cost of sales, applied consistently. If substantially all of a caption is inventory purchases, a company may describe the caption qualitatively instead of quantifying it.

ASU 2024-03 in practice: a disclosure table for three captions

A public manufacturer presents three expense captions by function on its income statement. Its new note, in $ million, disaggregates them as follows:

Readers can now see that employee compensation totals $2,910 million, depreciation $540 million and amortization $180 million across the business, figures the functional captions hid. The company describes the other items qualitatively: freight, utilities and changes in inventory in cost of revenue; advertising, rent and professional fees in SG&A; materials and contractors in R&D. Separately, it discloses total selling expenses of $650 million, all within SG&A, and defines them as the costs of its sales staff, commissions, advertising and trade shows.

Does ASU 2024-03 apply to interim reports?

Yes, once interim reporting starts: the five categories and the other items are disclosed in each quarterly report. The selling expense definition is given annually, and updated in an interim period only if it changes, with prior periods recast unless that is impracticable. See interim reporting under IAS 34 for the IFRS equivalent rules.

When does ASU 2024-03 take effect?

For annual periods beginning after December 15, 2026, so calendar 2027 annual reports, and for interim periods within annual periods beginning after December 15, 2027, so from the first quarter of 2028. ASU 2025-01, issued in January 2025, clarified the interim date for companies with a fiscal year that does not match the calendar year. Early adoption is permitted. Companies can apply the disclosures prospectively, or retrospectively to all prior periods presented. See ASC 250 accounting changes.

How does ASU 2024-03 compare with IFRS 18?

IFRS 18, effective from 2027, also requires companies that present expenses by function to disclose, in a single note, depreciation, amortization, employee benefits, impairment losses and inventory write-downs included in each line item. The two were developed around the same time with similar aims, but the categories differ: US GAAP includes purchases of inventory and requires total selling expenses, while IFRS 18 includes impairments and inventory write-downs and applies to every company reporting under IFRS, not only public ones. See IFRS 18 aggregation and disaggregation, and for segment-level expense disclosures, ASC 280 segment reporting.

This guide is general information. It is not tax or legal advice for your situation.