The new expense disaggregation rules may look like a disclosure exercise. In practice, they will test whether finance teams can connect cost accounting, policy judgments, systems, and controls well enough to produce decision-useful, audit-ready reporting.
In November 2024, the Financial Accounting Standards Board (FASB or the Board) issued ASU 2024-03, Disaggregation of Income Statement Expenses (DISE), which requires public business entities to add a new tabular footnote that disaggregates certain natural expense categories embedded in relevant income statement captions within continuing operations. It is a disclosure-only standard: it does not change the face of the income statement, but it does require new transparency around the underlying composition of key expense captions.
The required categories include:
- Purchases of inventory
- Employee compensation
- Depreciation
- Intangible asset amortization
- Certain depreciation, depletion and amortization (DD&A) for oil-and-gas producing activities
- Depletion
Additional categories presented separately for each identified relevant expense caption include:
- Certain expense reimbursements
- Specific expenses, gains and losses required to be disclosed by other US GAAP
- Other items (residual amount and composition)
- Changes in inventories (if applicable)
- Other adjustments and reconciling items (if applicable)
Additionally, companies must also disclose total selling expenses and describe the composition of this management defined measure.
While on its face this may sound narrow, in practice it is not. DISE is less a footnote disclosure refresh and more a reporting architecture exercise. To comply, finance teams need to identify which captions are “relevant,” determine where the prescribed categories sit inside those captions, and build a repeatable process to track, extract, estimate, reconcile, review, and disclose the required amounts.
Beyond compliance, the increased transparency required by DISE can give management clearer insight into where costs are accumulating across the organization, helping surface inefficiencies and cost-saving opportunities that may not have been visible under more aggregated reporting.
Key Highlights for Finance Functions
The companies most heavily affected are not just those in a single industry. The biggest burden will fall on companies with either large embedded natural expenses or poorly aligned reporting data.
Inventory-heavy manufacturers, consumer products companies, retailers, and distributors are likely to face more substantial implementation challenges as purchases of inventory is one of the prescribed categories, and inventory costs often move through cost accounting systems that were not built to feed an SEC-ready disclosure. For companies with inventory, the real challenge is not necessarily understanding the guidance, but operationalizing it. For example, DISE allows for a policy election in which inventory-related captions can be disaggregated using either a cost-incurred or expense-incurred basis, and that decision affects data requirements, reconciliations, and comparability. Additionally, companies using standard cost systems may also need to bridge from standard costs to actual costs, including purchase price, labor, and overhead variances. Reserve-related items, obsolescence, and other inventory adjustments add another layer of policy judgment because the standard does not prescribe a single presentation answer for every fact pattern.
However, companies with inventory are not the only ones with work to do. Labor-intensive companies may find that employee compensation is spread across SG&A, R&D, and other functional captions rather than captured in one disclosure-ready stream. Asset-intensive businesses often have depreciation embedded in several operating captions. Acquisitive and IP-heavy companies may have significant amortization of acquired intangibles sitting inside operating lines. In each case, the issue is the same: DISE asks finance to bridge from how costs are accumulated and managed internally to how they must now be described externally.
For most companies, the most underestimated challenge is likely data granularity. Many companies do not currently track and maintain expense information in a way that supports DISE on a controlled, repeatable basis, particularly where there are multiple ERPs, shared-service center allocations, decentralized business units, or inherited systems from acquisitions. That is why the hardest part of implementation will often be upstream: systems, mappings, ownership, and controls.
A second major challenge is policy judgment. The standard requires disclosure of total selling expenses and, annually, the company’s definition of selling expenses, but it does not impose a universal market definition. The same is true of the residual “other” category, which must be qualitatively described. In other words, DISE does not just require more numbers; it requires more governance.
A third challenge is internal control over financial reporting (ICFR). Once a company introduces new estimates, manual bridges, new reports/data/system extracts, and reconciliation layers to produce the DISE-required disclosure, it also introduces new risk points. For many issuers, the real readiness question is not whether the disclosure can be drafted once, but whether it can be produced quarter after quarter with evidence, review, and auditability.
Effective Date
DISE is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027 for public business entities, with early adoption permitted.
FASB later issued ASU 2025-01 to clarify the interim effective date for non-calendar-year public business entities.
Why It Matters to Finance
For finance organizations, DISE matters because it is a test of whether the company can connect how expenses are recorded, allocated, analyzed, and disclosed. The standard sits alongside the broader trend toward more granular external reporting to give investors a clearer look into the composition of major expense captions in order to better understand performance, prospects for future cash flows and comparability over time.
More constructively, DISE presents finance teams with an opportunity to gain sharper visibility into how costs are truly incurred across the business. By forcing a clearer linkage between natural expenses, functional reporting, and external disclosures, the process may surface spending patterns that were previously obscured by allocations, aggregation, or legacy systems. Companies that engage early may find that DISE highlights opportunities to rationalize cost structures, improve procurement and labor efficiency, and refine management reporting. In that sense, the standard can act as a catalyst for better cost transparency and discipline, turning a compliance requirement into actionable insight that supports margin improvement and more informed decision-making over time.
The right response is to treat DISE as a finance transformation project with disclosure output. Leading teams are identifying relevant captions now, prototyping the footnote early, pressure-testing whether estimates will be needed, aligning policy positions on selling expenses and “other,” and involving IT, internal audit, and external auditors well before the filing deadline. Companies that do that work early should be able to turn DISE into a manageable reporting build. Companies that wait may find themselves solving for data, controls, and governance at the same time they are trying to close the books.
The Board has also scheduled a public roundtable on May 27, 2026 to gather additional feedback as it monitors implementation. That is an important signal: practice questions remain active, and companies should not assume this is a low-effort adoption.
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