FASB Clarifies Interim Effective Date of New Disaggregation Standard for Some Companies

The Financial Accounting Standards Board (FASB) published its first Accounting Standards Update (ASU) for 2025 on Monday which clears up confusion on the interim effective date of its new disaggregation of income statement expenses standard for public companies that don’t have an annual reporting period ending on Dec. 31.

Last November, the FASB released ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40), which requires public companies to disclose, in interim and annual reporting periods, additional information about certain expenses in the notes to financial statements, such as the amounts of inventory purchases, employee compensation, depreciation, and intangible asset amortization, among other things.

At that time, the FASB said the new rules would go into effect for public business entities with annual reporting periods beginning after Dec. 15, 2026, and interim reporting periods beginning after Dec. 15, 2027. Early adoption would be permitted.

But after ASU 2024-03 was issued, the FASB said it was asked to clarify the initial effective date for companies that don’t have an annual reporting period that ends on Dec. 31, referred to as “non-calendar year-end entities.” Because of how the effective date guidance was written, a non-calendar year-end entity could have concluded that it would be required to initially adopt the disclosure requirements in ASU 2024-03 in an interim reporting period, rather than in an annual reporting period, the FASB said.

“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 Dec. 15, 2027. However, the board acknowledges that there was ambiguity between the intent in the basis for conclusions in Update 2024-03 and the transition guidance that was included in the codification when Update 2024-03 was issued,” the FASB said in the ASU issued on Jan. 6.

So, ASU 2025-01 amends the effective date of the new disaggregation of income statement expenses standard to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after Dec. 15, 2026, and interim periods within annual reporting periods beginning after Dec. 15, 2027. Early adoption is still permitted.

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