The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2024-03 to enhance transparency into how companies incur and report expenses.
For technology and life sciences organizations, wherein cost structures are often complex and highly scrutinized, this update introduces new disclosure requirements that will require thoughtful preparation and cross-functional coordination.
What is ASU 2024-03?
ASU 2024-03 (Expense Disaggregation Disclosures) requires public business entities to provide more detailed information about the components of key income statement expense captions in the footnotes to financial statements. Importantly, the standard does not change the face of the income statement. Instead, it expands the level of detail required in disclosures for both annual and interim financial statements.
Main Provisions
At its core, ASU 2024-03 is about “peeling back” aggregated expense line items to improve comparability and decision-usefulness for investors.
Key requirements include:
Disaggregation of expense captions: Companies must break down significant expense line items (as applicable) into specified natural expense categories, including purchases of inventory, employee compensation, depreciation, and intangible asset amortization.
Tabular disclosure format: Disclosures are presented in a structured, tabular format within the financial statement notes.
Inventory-related disclosure methods: Organizations can choose between a cost-incurred basis or an expense-incurred basis for disaggregating inventory-related amounts, with related reconciling or residual amounts described as required.
Effective date:
- Annual periods beginning after Dec. 15, 2026
- Interim periods beginning after Dec. 15, 2027
- Early adoption is permitted.
Ultimately, ASU 2024-03 increases visibility into cost drivers without altering primary financial statement presentation.
Implications for Technology Companies
Technology companies, particularly SaaS, software, and platform-based businesses, often rely on highly aggregated expense categories. ASU 2024-03 will require a more granular view.
Key impacts may include:
Greater visibility into cost structure: Investors will gain clearer insight into R&D vs. operational spend, hosting and infrastructure costs, and employee-related expenses across functions.
Pressure on margin narratives: Disaggregated disclosures may expose high compensation costs in engineering teams and capitalized vs. expensed development costs.
System and data challenges: Many tech companies will need to reconfigure ERP systems to capture expense data at a more detailed level, and align finance, engineering, and operations data structures.
Increased scrutiny from investors: Enhanced transparency could shift focus to cost efficiency metrics and influence valuation models tied to profitability and scalability.
Implications for Life Sciences Companies
Life sciences organizations, including biotech, pharma, and medical device companies, face unique considerations due to regulatory complexity and long development cycles.
Key impacts may include:
Enhanced R&D transparency: Disclosures may highlight clinical trial costs, pre-commercial vs. commercial spending, and allocation of labor across research stages.
Inventory and manufacturing complexity: Companies with physical products must carefully evaluate inventory capitalization practices and cost flows through production and commercialization, regardless of whether production is in-house or outsourced.
Regulatory and reporting alignment: Life sciences companies will need to ensure consistency between financial reporting and regulatory disclosures, and alignment across global entities and reporting frameworks.
Investor communication challenges: Greater transparency could change how companies tell their “pipeline investment” story and require a more proactive explanation of cost variability.
Steps to Prepare for Adoption of ASU 2024-03
Organizations can begin to prepare for adoption of ASU 2024-03 by taking the following actions:
Perform a Gap Assessment
- Identify current expense disclosure practices
- Compare against ASU 2024-03 requirements
- Highlight missing data elements or insufficient granularity
Evaluate Data and Systems
- Assess whether current systems can:
- Capture required expense categories
- Support tabular disclosures
- Determine if ERP or reporting enhancements are needed
Align Accounting Policies
- Decide on cost-incurred vs. expense-incurred approach for inventory
- Ensure consistent application across reporting periods
Engage Cross-Functional Stakeholders
- Collaborate with:
- Finance and accounting
- Operations and supply chain
- R&D and engineering teams
- Ensure consistent classification and tracking of expenses
Revisit Controls and Processes
- Update internal controls over financial reporting (ICFR)
- Document new processes for gathering and validating data
Plan Investor Communication
- Prepare to explain:
- Changes in disclosed expense patterns
- Any impacts on margins and financial metrics
Connect With CBIZ to Dive Deeper Into ASU 2024-03
ASU 2024-03 represents a meaningful shift toward greater expense transparency. While it does not change how companies present their income statements, it significantly increases the level of detail required behind the scenes. For technology and life sciences companies, it introduces new expectations around data quality, operational visibility, and financial storytelling.
Connect with CBIZ today to discuss what ASU 2024-03 may mean for your business.
© Copyright CBIZ, Inc. All rights reserved. Use of the material contained herein without the express written consent of the firms is prohibited by law. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein. Material contained in this publication is informational and promotional in nature and not intended to be specific financial, tax or consulting advice. Readers are advised to seek professional consultation regarding circumstances affecting their organization.
“CBIZ” is the brand name under which CBIZ CPAs P.C. and CBIZ, Inc. and its subsidiaries, including CBIZ Advisors, LLC, provide professional services. CBIZ CPAs P.C. and CBIZ, Inc. (and its subsidiaries) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations, and professional standards. CBIZ CPAs P.C. is a licensed independent CPA firm that provides attest services to its clients. CBIZ, Inc. and its subsidiary entities provide tax, advisory, and consulting services to their clients. CBIZ, Inc. and its subsidiary entities are not licensed CPA firms and, therefore, cannot provide attest services.
