DISE Is Coming: What Public Companies Need to Know About the New Expense Disaggregation Standard

The "Why" Behind DISE

DISE didn't emerge from a vacuum. At the heart of DISE is a comparability problem that has frustrated analysts for years. Two manufacturers can each report $10 million in cost of goods sold and look identical on the surface—but one might be highly automated with heavy depreciation and lean labor costs, while the other is entirely labor-intensive.

The FASB heard that feedback and responded—not once, but three times. If you've been tracking FASB's recent activity, DISE is the third installment in what's been called the "expense transparency trilogy":

It's also worth noting this isn't just a U.S. conversation. The IASB issued IFRS 18 with similar natural expense disaggregation requirements. Both standard-setters are responding to the same investor demand: give us a better view of cost structure.

Who This Applies To—and Some Surprises

DISE applies to all public business entities (PBEs) as defined in the ASC master glossary. That's broader than just SEC registrants, and a few categories catch people off guard:

That last bullet on the "in scope" list is the one that surprises people most. If you're a private company that gets acquired by a public company, and your financial statements need to be filed with the SEC, DISE applies to those statements. If there's any possibility of an acquisition or IPO in the next several years, this standard is worth understanding now. The implementation lift can be substantial, and being caught flat-footed at the moment of transaction is not where you want to be.

Timing and Transition

Here are the effective dates you need to know:

For calendar year-end companies: first annual DISE disclosure appears in the 2027 10-K, with interim disclosures starting in Q1 2028.

Early adoption is permitted, though most companies will likely stick with the required dates given the implementation work involved.

On transition: The standard defaults to prospective adoption, which means you apply it going forward without restating prior periods. The practical implication: in your 2027 annual report, you'll have DISE disclosures for 2027 but no comparative figures for 2026 or 2025. Comparative periods build up progressively—you get two years of comparatives in 2029. The FASB designed it this way because many companies simply won't have the historical data to restate. That said, retrospective adoption is permitted if you want to provide comparatives from day one.

This is actually a strategic decision worth thinking through early. Some companies may prefer to show investors a multi-year cost structure view right out of the gate. Others will want to build up comparatives gradually. The choice depends on your data availability, competitive considerations, and investor relations strategy.

The Core Requirement: Relevant Expense Captions

The first step in applying DISE is identifying your relevant expense captions—the income statement line items that need to be disaggregated.

A relevant expense caption is any income statement line item in continuing operations that contains any of the five natural expense categories (more on those below). Critically, the determination is based on what's actually in the line item, not what it's called.

For most companies, the usual suspects look something like this:

One nuance to watch: combined captions like "depreciation and amortization" or "occupancy and equipment" are relevant expense captions because they contain more than one natural expense category, even if they're named after one. You'd need to break out the underlying components.

The Five Natural Expense Categories

Once you've identified your relevant expense captions, you disaggregate each one into the following five required natural expense categories in a tabular footnote:

Companies only disclose the categories that are actually present in a given expense caption—if COGS doesn't include any intangible amortization, there's no amortization line in the COGS table.

What Else Goes in the Table

The tabular disclosure isn't just the five natural expense categories. It's designed as a "one-stop shop"—meaning it also integrates certain expenses, gains, and losses already required to be disclosed under other areas of GAAP. The standard organizes these into two distinct lists, each with different triggering logic.

List 1: Always Reported Separately (If Present in a Relevant Expense Caption)

These items must be broken out as separate line items in the tabular disclosure whenever they appear in a relevant expense caption—no additional conditions required. They represent amounts where existing GAAP already requires disclosure of both the dollar amount and the income statement line in which they're recorded.

Common examples most companies will encounter include impairment losses on long-lived assets and intangibles, exit or disposal costs (including one-time employee termination benefits under ASC 420), gains and losses on derivative instruments and related hedged items, and components of net periodic pension cost other than the service cost component (interest cost, expected return on assets, amortization of prior service cost). The full list in the standard also covers items like bargain purchase gains, deconsolidation gains and losses, and amortization and impairment of film costs and program material licenses, among others.

One important nuance: the presence of any of these items in an income statement line does not by itself make that line a relevant expense caption. The determination of whether a caption is relevant is based solely on whether it contains one of the five natural expense categories.

List 2: Reported Separately Only If Entirely in One Relevant Expense Caption

This second list operates on different logic. These items are required under other areas of GAAP to be disclosed, but existing guidance doesn't specifically require disclosure of which income statement line they appear in. So DISE steps in with a more limited requirement: break these out separately in the table, but only if the full amount is recorded entirely within a single relevant expense caption.

If an item on List 2 is spread across multiple relevant expense captions—say, operating lease costs split between COGS and SG&A—there's no separate disclosure requirement. Those amounts simply fall into "other items" within each relevant caption.

Commonly encountered examples include operating lease costs (and related short-term and variable lease costs), warranty expense, loss contingencies recognized, amortization of contract acquisition and fulfillment costs under ASC 340-40, ARO accretion expense, and foreign currency transaction gains and losses. The standard's full list is more extensive and worth reviewing in its entirety as you assess your specific facts.

A practical illustration of how the single-caption trigger works: if warranty expense is recorded entirely in cost of goods sold, it gets its own line in the COGS table. If warranty expense is split between COGS and SG&A, it doesn't get broken out separately in either table — it flows into "other items" in each caption instead.

One more thing to keep in mind: even when a List 2 item doesn't require separate presentation in the DISE table, all underlying disclosure requirements from the applicable Codification topic still apply. DISE doesn't eliminate those obligations—it integrates them into the table when the conditions are met.

The "Other Items" Catch-All

After the five natural expense categories and any separately required List 1 or List 2 items, whatever is left in a relevant expense caption goes into a catch-all "other items" line. This must be accompanied by a qualitative description of what's in it, based on natural expense classifications. The level of detail should reflect the significance of the amounts—if "other items" is a large number, a more thorough qualitative explanation is expected.

Other items can be significant. With only five required natural expense categories, costs like contractor fees, utilities, supplies, rent, professional services, and outbound freight will often land here. Investors will read these descriptions, so the qualitative disclosure deserves real attention.

Selling Expenses: A Separate Disclosure

Separate from the disaggregation table, companies must disclose their total selling expenses recognized in continuing operations for every annual and interim period. This is a management-defined measure—the FASB intentionally left "selling expenses" undefined because what constitutes "selling" looks very different across industries.

Management has broad latitude to define what's included—marketing, advertising, customer acquisition, fulfillment, client relationship management, costs of physical sales locations, and more. But the definition must be disclosed annually, and if it changes, prior periods must be recast (unless impracticable). Consistency is the price of flexibility.

Key Judgments Management Needs to Work Through

DISE surfaces some meaningful accounting policy decisions that need to be made before you produce your first table. Here are the ones that require careful thought:

1. Cost-Incurred vs. Expense-Incurred Basis for Inventory For expense captions that include inventory (typically COGS), companies must choose between two disaggregation approaches:

• Cost-incurred basis: Disclose costs incurred during the period (both capitalized to inventory and directly expensed), plus a "changes in inventory" reconciling line.
• Expense-incurred basis: Disclose costs embedded in inventory sold, traced back to their original natural expense category when first incurred.

The expense-incurred approach is theoretically more precise, but operationally demanding—it requires tracking the composition of costs through the entire inventory lifecycle, which becomes particularly challenging under LIFO, average cost, or retail inventory methods. The vast majority of companies will elect cost-incurred for practical reasons.

2. What's In "Purchases of Inventory"? Specifically: do you include only the invoice price paid to suppliers, or do you also include direct acquisition costs like inbound freight, tariffs, and import taxes? The standard doesn't prescribe an answer. Either a broad view (all external acquisition costs) or a narrow view (invoice price only) is acceptable—but you need to make the call, disclose it if material, and apply it consistently.

3. How to Define "Selling Expenses" This is a management judgment call with real strategic implications. Your definition signals to investors what you consider your variable, revenue-driven cost base versus your fixed infrastructure. Think carefully about whether fulfillment, advertising, e-commerce platform costs, and field sales operations are in or out — and make sure the definition reflects how you actually manage the business.

4. Whether to Include Certain Employee Perks Subsidized meals, gym memberships, and similar benefits aren't required to be in employee compensation, but can be included if you elect to do so. If you elect in, you must disclose it and apply consistently.

5. Voluntary Disclosures DISE permits (but doesn't require) voluntary disaggregation beyond the five required categories. If contractor costs are significant—common in tech, professional services, and life sciences—you may want to break those out voluntarily alongside employee compensation, or even provide a "total workforce cost" subtotal. These decisions matter for your investor story.

Exceptions and Practical Expedients

DISE provides some meaningful relief:

What This Is NOT

A few important clarifications, because misconceptions are already circulating:

This is not a presentation change. DISE is a disclosure standard — it does not change what appears on the face of the income statement. Companies are free to continue presenting COGS, SG&A, and R&D exactly as they do today. The new information lives in the footnotes only.

The SEC has confirmed this. Reg S-X Rule 5-03 income statement presentation requirements are unchanged by DISE. You're not being asked to restructure your income statement — you're being asked to explain what's in it.

This is not just an annual exercise. DISE disclosures are required every quarter (with limited exceptions for certain items only required annually). That's an important operational reality that drives the systems and process investment discussion.

Final Thoughts

DISE is a disclosure standard—but describing it that way undersells the operational effort it requires. Producing this information reliably every quarter demands that companies understand the composition of their own cost structures at a level of granularity many don't currently track. For some, that means system changes. For others, new data feeds, updated controls, and cross-functional coordination between accounting, HR, IT, and operations.

The companies that will navigate this best are the ones that start now—not because the effective date is tomorrow, but because implementation timelines are real and the first companies to get this right will find genuine value in the cost visibility it creates.

At Embark, our technical accounting team is actively working with public companies through DISE readiness assessments, accounting policy decisions, and implementation planning. Whether you're just beginning to understand the standard or you're already knee-deep in your gap analysis, we're here to help.

Let's connect and talk through where you are and what you need.