The FASB's Expense Disaggregation Standard (DISE): Five Costs Inside Each Relevant Expense Caption, and How It Differs From IFRS 18's Nature Note

A US public company's 2027 income statement can look exactly like its 2026 one: ASU 2024-03, the FASB's standard on disaggregation of income statement expenses (DISE, ASC 220-40), changes no caption on the face. It adds a note: for each relevant expense caption, a public business entity splits out five natural costs, describes what is left as "other items", and discloses its total selling expenses.

The standard catches annual periods beginning after 15 December 2026, and by our reading of the AICPA's policy it becomes eligible for testing on the CPA exam from the quarter starting 1 January 2027. The AICPA has issued no DISE notice, so that date is our reading, not its statement.

If you work under IFRS, DISE looks familiar and is not: paragraph 83 of IFRS 18, Presentation and Disclosure in Financial Statements (not the old IAS 18 on revenue), asks function presenters for a nature note from 2027, but only three of its five natures match DISE's, and IFRS is not tested on the CPA.

What DISE requires, and what it leaves alone

A relevant expense caption is any expense caption on the face of the income statement, within continuing operations, that contains at least one of five categories (ASC 220-40-50-6 and 50-12): purchases of inventory; employee compensation; depreciation; intangible asset amortisation; and oil and gas depreciation, depletion and amortisation, or other depletion. Cost of sales, SG&A and research and development usually qualify; interest expense, income tax expense and the share of equity-method earnings do not. A caption made entirely of one category, a depreciation line for example, needs nothing more.

Some amounts other Topics require join the table: an impairment of long-lived assets held and used in whichever relevant caption holds it (50-21); operating lease cost, foreign currency gains and losses, warranty expense and 18 other items only when they sit entirely in one relevant caption (50-22). The remainder is "other items": an amount plus a description (50-30). For inventory, the entity picks one basis: costs incurred, reconciled through a "changes in inventories" line, or expense recognised, traced to the natural costs of the goods sold (50-31). For a defined benefit plan, only the service cost is employee compensation. Selling expenses are disclosed separately: the total every period and, annually, the entity's own definition (50-35 and 50-36). Estimates are allowed; no operating subtotal is required.

Who it covers and from when

Public business entities only; private companies, not-for-profit entities and employee benefit plans are outside it (220-40-15). ASU 2025-01 (January 2025) only reworded the date, so that a company whose year does not end on 31 December starts with an annual period, not a quarter. Early adoption is permitted; transition is prospective or retrospective. We found no deferral as at November 2026.

Entity	First annual note	First quarterly note
Public business entity, calendar year	Year ending 31 December 2027	Quarter ending 31 March 2028
Public business entity, 30 June year end	Year ending 30 June 2028	Quarter ending 30 September 2028

When DISE can appear on the CPA exam: the AICPA's "later of" rule, worked

The AICPA makes a new pronouncement eligible for testing in the later of the first calendar quarter beginning after its earliest mandatory effective date, regardless of entity type, and the first calendar quarter beginning six months after its issue. ASU 2024-03 was issued on 4 November 2024.

Limb	Date	First calendar quarter after it
Earliest mandatory effective date	Annual periods beginning after 15 December 2026	Begins 1 January 2027
Six months after issue	4 May 2025	Begins 1 July 2025
Eligible, by our reading	The later of the two	Begins 1 January 2027

The AICPA's page, dated 20 October 2026, has notices for QC 1000 and H.R. 1 only, and the January 2027 Blueprints, approved on 16 September 2026, changed FAR only by adding a reference to its introduction; IFRS stays out (IFRS Has Not Been Tested on the CPA Exam Since July 2021). Eligible does not mean tested.

Where it sits: FAR Area I, Financial Reporting (30 to 40%), Group A, General-Purpose Financial Reporting: For-Profit Business Entities, Topic 2, Income statement, and Topic 7, Notes to financial statements, both up to Analysis. FAR covers for-profit entities "public and nonpublic", so scope is examinable there. BAR may test public and nonpublic differences for its own listed reporting topics, which do not include DISE; on BAR the table is more likely data for Area I, Group A, Topic 1, Financial statement analysis, by our reading.

Company B's DISE table: cost of sales and SG&A, disaggregated

Company B, from Loan Covenants and Bonus Plans After IFRS 18, is a Saudi manufacturer whose US parent is a public business entity, so its US GAAP package needs this split. In SAR millions: revenue 1,000, cost of sales 600, SG&A 188, a separate impairment line 25 and a disposal gain 5, so operating income is 192. SG&A is 8 above the 180 in its IFRS accounts: ASC 842 swaps right-of-use depreciation of 20 for an operating lease cost of 25, and ASC 730 expenses development spend of 7 that IFRS capitalised and amortises at 4. It uses the expense-incurred basis.

DISE category (SAR millions)	Cost of sales	SG&A
Purchases of inventory	380	0
Employee compensation	106	84
Depreciation	34	6
Intangible asset amortisation	0	0
Oil and gas DD&A and other depletion	0	0
Operating lease cost	0	25
Other items	80	73
Total, as on the face	600	188
Total selling expenses, disclosed separately	65

The impairment line is not relevant: an other-Topic item never makes a caption relevant on its own (50-24). Booked inside SG&A, the 25 would be a row there (the FASB's Example 1). The lease cost is a row because all of it sits in SG&A; spread over two captions, it would fall into other items. SG&A's employee compensation includes the end-of-service plan's service cost of 12 and 5 of development staff. Other items are described as energy, maintenance, inbound freight and an inventory write-down of 3 in cost of sales, and outbound freight 35, advertising 15, professional fees and IT in SG&A. Selling expenses are 65, not the 100 of selling and distribution: Company B's definition treats outbound freight as distribution.

One cost-of-sales line under DISE and under IFRS 18's nature note

In Company B's IFRS accounts cost of sales is also 600. IFRS 18 paragraph 83 requires an entity with any operating line presented by function to disclose, in one note, five totals and the amount of each in every operating line; the IFRS Interpretations Committee said in April 2026 that the paragraph "contains no exceptions or exclusions".

Cost of sales of 600 (SAR millions)	DISE	IFRS 18 paragraph 83
Purchases of inventory	380	Not required
Employee compensation or benefits	106	106
Depreciation	34	34
Amortisation	0	0
Inventory write-downs	Inside other items	3
Residual	Other items, 80, described	No amount; each function line described (paragraph 82(b))
Rows must add to 600	Yes	No

SG&A is where the notes part, for recognition reasons: the IFRS note shows total depreciation of 60, 20 of it on the right-of-use asset, and amortisation of 4; DISE shows total depreciation of 40, no amortisation and a lease cost of 25. IFRS operating lines carry employee benefits of 185; DISE's employee compensation is 190, the extra 5 being development staff that IFRS capitalised (see leases under ASC 842 and ASC 730 against IAS 38).

Point	DISE (ASC 220-40)	IFRS 18 paragraph 83
Who	Public business entities	Any IFRS reporter with a function line in operating
Quarterly reports	From years beginning after 15 December 2027	Not in condensed interim statements (paragraph 5)
Natures	Inventory purchases, employee compensation, depreciation, intangible amortisation, depletion	Depreciation, amortisation, employee benefits, IAS 36 impairments, inventory write-downs
Selling expenses	Total, plus the entity's definition	No equivalent
Capitalised inventory costs	Cost-incurred or expense-incurred basis	May be included, with an explanation (B84)
Face of the statement	Unchanged	Five categories, two required subtotals

Five FAR question types, with answers

Which cost is not a DISE category?

For each relevant expense caption, a public business entity discloses all of the following except: (a) employee compensation, (b) purchases of inventory, (c) advertising, (d) intangible asset amortisation. Answer: (c); advertising sits in other items.

When does a June year-end company start?

For a public business entity with a 30 June year end, the first annual note covers the year ending 30 June 2028, because the year from 1 July 2026 does not begin after 15 December 2026, and the first quarterly table the quarter ending 30 September 2028. A private company never gives the note.

Which captions are relevant?

On Company B's face, cost of sales and SG&A; not the impairment line, interest or income tax. A natural task-based simulation: tick the captions, complete the table.

What must be said about selling expenses?

The total every period and, annually, the entity's definition, which need not match any caption: 65 for Company B.

Find the other items

SG&A of 188 holds employee compensation of 84, depreciation of 6 and operating lease cost of 25. Other items: 188 less 115, which is 73. Filing the 25 under depreciation is the trap: of lease costs, only a finance lease's right-of-use amortisation can go there (50-10). A BAR item would turn the table into ratios: employee compensation of 190 is 19% of revenue, selling expenses 6.5%.

Where to practise this

Prepito's FAR course covers Area I with practice questions and full explanations, and the BAR course covers financial statement analysis; start with the free FAR sample questions. For IFRS 18 itself, see IFRS 18 vs IAS 1 and Is IFRS 18 on Your Exam?, and for the qualification, the CPA programme.

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Sources: FASB, ASU 2024-03 (ASC 220-40) and ASU 2025-01; AICPA, Learn what to study for the CPA Exam, the 2026 Blueprints and the 2027 summary of changes; IFRS Foundation, IFRS 18, text as in AASB 18, and the April 2026 agenda decision on paragraph 83. Company B's figures are illustrative. As at November 2026: check the AICPA page for a DISE notice, and expect quarterly tables from 2028.