FASB continues push for corporate expense disclosures

Jan. 9, 2023

Dive Brief:

• The Financial Accounting Standards Board (FASB) is poised this week to delve back into an ongoing project that could ultimately require companies to break out detailed expense information in their income statements.
• The project is one of several initiatives that have been a priority for stakeholders under the general theme of disaggregation, Chair Richard Jones previously told CFO Dive. But it has been moving relatively slowly through the standard setting process and in October Jones expressed concern that the board not get bogged down in details such as those around selling expenses.
• CFOs should be mindful of the reporting requirement changes that could be coming their way and watching for when or whether the income statement expense projects move to the exposure draft stage which signals that it is more imminent, said Kecia Williams Smith, an accounting professor at North Carolina Agricultural and Technical State University. “Stay tuned,” she said.

Dive Insight:
FASB kicks off its first meeting of the new year Wednesday with a single relatively straightforward project on its agenda as some experts expect the collapse of the crypto exchange FTX will likely lead to sharper accounting oversight in 2023. The U.S. accounting standard setter also faces external pressure to step up the pace of its standard-setting process.

In September the Securities and Exchange Commission (SEC)’s Investor Advisory Committee criticized the FASB’s rule-making process for falling short of providing the new or updated accounting guidance needed by investors to analyze company value and performance in today’s fast-changing markets.

FASB Chair Jones seemed mindful of the ticking time clock during a meeting in October when the board last addressed the income statement issue.

“I would suggest we do our best to keep it narrow, simple and high-level,” Jones said at one point. Otherwise “we’re on our way to another long-term project.”

Also at that meeting, the time issue became an element in the discussion as some members pushed for the new guidance to require companies to provide the total labor costs for the period reported, citing spiking labor costs and companies having a hard time retaining workers

Board member Christine Botosan argued that the total cost of labor should be broken out rather than relying on other reporting requirements that might only capture part of the labor costs such as software development. Another member suggested that the labor be taken up in a later project but Botosan pushed back.

“We’ve heard repeatedly from users that that is information that they desperately need,” Botosan said. “Folding it into a future project is something that’s pretty far off and given the need that users have expressed and how critical information is to them now is the time to be responsive to this request and I think we could easily do it within this project,” Botosan asserted.

But Jones asserted that FASB has defined labor and depreciation and amortization as the mandatory costs to be disaggregated as part of the board’s approach to income statement expense disaggregation. Bostosan said breaking out 85% of the labor costs under the new project was “a huge step forward” but the project as it currently is configured would not require total labor cost for the time period.

A staff member said the current scope of the project is focused on the specific income statement expenses of cost of sales and SG&A.

[CFO Dive]