Fast-moving DISE requirements for consumer companies: Are you ready?

Talking points

• New FASB expense disaggregation disclosure rules may lead to updates to data, processes, and controls.
• For consumer companies, implementation may include addressing challenges related to inventory, employee compensation, and system readiness.
• Early scoping can help reduce reporting surprises and support smoother adoption.

When the Financial Accounting Standards Board (FASB) issues a new Accounting Standard Update (ASU), it can be tempting to assume there’s still plenty of time to prepare. FASB ASU 2024-03 may challenge that thinking. The standard adds complex disclosure requirements for the disaggregation of income statement expenses (DISE), which may create implementation challenges. As a result, preparing to implement ASU 2024-03 will involve thoughtful planning.

For consumer companies with complex inventory models, contracted labor, or fragmented systems, DISE may amount to more than a new footnote. It may lead to finance and accounting teams revisiting data, processes, and controls behind expense captions—work that may take longer than expected. In this blog, we highlight what the DISE standard changes, effective dates, and what finance and accounting teams in the consumer industry may want to consider sooner rather than later.

What changed?

ASU 2024-03 added new disclosure requirements to ASC 220-40 for public business entities. It does not change how expenses are recognized under US GAAP, or the captions presented on the face of the income statement. Rather, it requires companies to provide a tabular footnote disclosure that disaggregates certain expense captions within continuing operations into specified natural income statement expense categories.

For consumer companies, those categories include (1) purchases of inventory, (2) employee compensation, (3) depreciation, and (4) intangible asset amortization. When applicable, certain amounts outside those categories must also be presented, with the remainder included in a line item referred to as “other.” In short, the new requirements are designed to give investors more visibility into the cost structure and cash flow forecasts represented by general expense captions presented in the income statement.

When do the requirements take effect?

The standard is effective for annual periods beginning after December 15, 2026, and for interim periods within annual periods beginning after December 15, 2027. Early adoption is permitted. For calendar-year public companies, that means the first annual disclosures would appear in the 2027 Form 10-K, with interim disclosures beginning in 2028.

Why this matters for consumer companies

Although the DISE standard is industry-agnostic, consumer companies may be impacted differently. Many income statement captions, such as cost of sales and selling, general and administrative, include a mix of inventory costs, labor, depreciation, and other operating expenses. Companies will likely need clarity on what is included in each caption and how to compile required information. This may be challenging for companies with multiple ERP systems, complex global structures, and plants using different inventory costing methodologies.

For captions including purchases of inventory, the standard permits companies to use either a cost-incurred or expense-incurred approach. The cost-incurred basis includes costs capitalized to inventory and directly expensed during the current period. The expense-incurred basis includes expenses from the derecognition of inventory and costs directly expensed during the current period. For companies using LIFO, the retail inventory method, or standard costing—which many consumer entities do—the expense-incurred approach may be more difficult to apply.

The standard includes a practical expedient for captions made up of “substantially all” inventory purchases. A qualitative description may be provided instead of quantitative disaggregation. Though “substantially all” is not defined, paragraph BC80 of the standard observes that use of this term should be consistent with its use in other GAAP (e.g., ASC 810, ASC 606, ASC 842), under which it is generally interpreted as 90% or more. Companies evaluating whether they qualify may need to assess whether their cost of sales line item is and will remain 90% or more composed of purchases of finished goods. This may be more relevant for pure-play retailers that do not recognize labor or occupancy costs in cost of sales.

The role of estimates and systems

The guidance allows companies to use estimates or other methods that reasonably approximate the required amounts. While that flexibility may help where systems don’t have transaction-level data, it does not reduce the need for rigor. Finance and accounting teams need to determine where estimates are appropriate, what data supports them, and what controls are needed over both data and the estimation methodology.

Next steps for finance and accounting teams

Although DISE affects financial reporting disclosures, the implementation effort will likely extend beyond controllership and consist of cross-functional support from operations, information technology (IT), financial planning and analysis (FP&A), investor relations, human resources (HR), and internal audit. Starting early can help make the transition more manageable. Illustrative examples of initial activities companies may consider as part of DISE adoption include, but are not limited to: 

• Identifying which income statement captions are in scope
• Assessing whether current systems can support the required disaggregation
• Determining how inventory purchases will be presented and where estimates may be appropriate
• Reviewing controls, key judgments, and coordination requirements across controllership, operations, IT, FP&A, investor relations, HR, and internal audit

What role can Deloitte play?

Deloitte can advise consumer companies as they prepare for DISE, including identifying in-scope captions, assessing data and system gaps, designing practical implementation approaches, and enhancing internal controls. Our technical accounting knowledge, coupled with our data and systems capabilities, allows us to provide a holistic approach with a defined methodology. 

To learn more, visit our Audit & assurance services for the consumer industry page or our DISE Heads Up page in DART. Feel free to reach out to us directly with questions.

The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances.

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