FASB Seeks Feedback on Clarification to Interim Effective Date for Disaggregation of Income Statement Expenses Standard

The Financial Accounting Standards Board (FASB) has published a proposed Accounting Standards Update (ASU) that, for public business entities that do not have an annual reporting period that ends on December 31, clarifies the interim effective date of Accounting Standards Update No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.

In the proposed ASU, the FASB says:

The Board issued Accounting Standards Update No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses, on November 4, 2024. Update 2024-03 states that the amendments are effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027.

Following the issuance of Update 2024-03, the Board was asked to clarify the initial effective date for entities that do not have an annual reporting period that ends on December 31 (referred to as non-calendar year-end entities). Because of how the effective date guidance was written, a non-calendar year-end entity may conclude that it would be required to initially adopt the disclosure requirements in Update 2024-03 in an interim reporting period, rather than in an annual reporting period.

The Board’s intent in the basis for conclusions of Update 2024-03 is clear that all public business entities should initially adopt the disclosure requirements in the first annual reporting period beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. However, the Board acknowledges an ambiguity between the intent in the basis for conclusions and the transition guidance in the Codification. In the Board’s view, requiring initial adoption of Update 2024-03 in an annual reporting period will provide investors with the most useful information because it represents a full operating cycle and is a baseline from which to compare future interim period information. As a result, the Board is issuing this proposed Update to clarify the effective date of Update 2024-03.