The FASB has issued an Exposure Draft for public comment that is intended to enhance the transparency and decision usefulness of an entity’s expense disclosures. Investors have observed that more detailed information about expenses is critically important in understanding an entity's performance, assessing an entity's prospects for future cash flows, and comparing an entity’s performance both over time and with that of other entities. Investors specifically indicated that more information about cost of sales and selling, general, and administrative expenses would assist them in better understanding an entity’s cost structure and forecasting future cash flows. Some investors also noted that employee compensation costs should be disclosed in greater detail.

The Exposure Draft would require that an entity disclose the amounts of (a) inventory and manufacturing expense, (b) employee compensation, (c) depreciation, and (d) intangible asset amortization included in each relevant expense caption presented on the face of the income statement within continuing operations. Additionally, the Exposure Draft would require disclosure of components of inventory and manufacturing costs, including (a) purchases of inventory, (b) employee compensation, (c) depreciation, and (d) intangible asset amortization. Other proposed disclosures include a qualitative description of other inventory and manufacturing costs and a definition of selling expenses along with the total amount of such expenses.

These changes would apply to public business entities (generally, entities that file with the SEC or that have issued, or are a conduit bond obligor for, securities) only. The Exposure Draft does not include any proposed changes for other entities.

The Exposure Draft would be applied prospectively with an option for retrospective application. The effective date and other adoption provisions will be determined at a later date. The FASB has requested feedback on a number of questions related to the proposed changes. Comments on the Exposure Draft are due by October 30, 2023.

The full text of the Exposure Draft can be found here.