From Standard to Disclosure: Building Your DISE Implementation Roadmap

Start Here: The Readiness Assessment

Before you can build anything, you have to know what you're dealing with. A proper DISE readiness assessment does two things: identifies your relevant expense captions and performs an honest gap analysis on whether you can actually populate them.

For each relevant caption — almost certainly cost of sales, SG&A, and R&D — you're asking a simple but often hard-to-answer question: Can I get this data from my current systems?

What most companies discover: they have some of this, but not all of it, and not at the right level of granularity. Maybe you know total employee compensation company-wide, but can't slice it by expense caption. Maybe you track inventory purchases but can't separate business combination inventory from routine purchases. The gap analysis surfaces your pain points — and those pain points drive your implementation roadmap.

The Decisions You Have to Make Before You Can Build

There are several key policy elections under DISE that can't be deferred — they drive your downstream system and process requirements. Implementation teams need to work through these early.

1. Cost-Incurred vs. Expense-Incurred Basis for Inventory

This is the biggest one. For relevant expense captions that include inventory (e.g., COGS), you're choosing between:

Cost-incurred basis: Disaggregate costs as they're incurred in the current period — both amounts capitalized to inventory and amounts directly expensed. Add a "changes in inventory" reconciling line to tie back to the income statement.

Expense-incurred basis: Disaggregate costs as they're expensed — tracing the composition of inventory sold back to the original nature of the costs when they were first capitalized.

In theory, expense-incurred is more intuitive (it aligns with what hit the P&L). In practice, it requires tracking cost composition through your entire inventory lifecycle — and that gets very difficult or operationally impracticable especially under LIFO, average cost, or the retail inventory method.

What we're seeing in practice: nearly all companies are electing cost-incurred. The reconciling "changes in inventory" line is a worthwhile trade-off for the operational simplicity.

2. What's In "Purchases of Inventory"?

Do you take a broad view (invoice price plus inbound freight, tariffs, and other direct acquisition costs) or a narrow view (invoice price only)?

Neither is wrong under the standard. But with tariffs and supply chain costs front-of-mind in 2026, this decision may require more thought. If tariffs represent a material component of your acquisition costs, the "broad" view gives investors a more complete picture of your input cost exposure. Teams will need to document their approach and apply it consistently.

3. Selling Expenses Definition

What does "selling" mean for your business? The FASB left this intentionally undefined, which means you get to define it in a way that reflects how you actually manage the business. But the definition goes into your disclosure and gets scrutinized — so think carefully about what story it tells.

Does your definition include fulfillment costs? Advertising? E-commerce platform costs? The costs of physical retail locations? How you answer those questions shapes how investors interpret the connection between your selling investment and your revenue performance.

4. Voluntary Disclosures

You're not required to break out anything beyond the five natural expense categories (plus required integrations from other GAAP). But you can voluntarily disclose more. For companies where contractor costs are significant — technology, life sciences, professional services — providing a voluntary "contractor costs" line alongside employee compensation, or even a "total workforce cost" subtotal, can give investors the context they're looking for without muddying the required disclosures.

Think about what your investors actually want to understand about your cost structure, and let that inform your voluntary disclosure strategy.

Where the Data Actually Lives (And Why That's a Problem)

Here's the uncomfortable truth: the data you need for DISE almost certainly doesn't live in your financial reporting system in a readily usable form. It's scattered across multiple source systems that don't talk to each other.

For multinational companies, this challenge compounds significantly. Different regions may run different ERP systems acquired through years of M&A activity. Employment laws and compensation structures differ by jurisdiction. What counts as "employee compensation" in Germany looks different from what it looks like in the U.S. Establishing consistent global definitions while respecting legitimate local differences is a real systems-and-governance challenge.

One pattern we're seeing: companies using multiple ERPs domestically (a common outcome of acquisitions) are treating DISE as the forcing function to build a common data aggregation layer — or even to standardize chart of accounts across systems. That's a bigger undertaking, but it delivers value beyond DISE compliance.

The standard does allow estimates. You don't need transaction-level precision on every dollar. What you need are estimates that are systematic, rational, supportable, and consistently applied — and well documented. For employee compensation in SG&A, for example, you might use headcount and average compensation rates by department if pay is relatively uniform. If there are wide pay ranges across a function (junior staff and senior executives lumped together), you'll need a more refined approach.

The Five Biggest Implementation Challenges — And How to Tackle Them

Challenge 1: Intercompany Inventory Eliminations

For vertically integrated companies or those with significant intercompany sales, purchases of inventory are supposed to capture only external spend from the perspective of the consolidated reporting entity. Intercompany transactions are eliminated. But tracing back through those eliminations to the original external purchase can be difficult when systems don't tag costs that way.

Approach: Systems need to be able to identify intercompany transactions and trace the cost composition back to the originating entity's external purchases. For companies with complex supply chains, this may require ERP configuration changes or consolidation system enhancements.

Challenge 2: Employee vs. Contractor Distinction

Your GL probably doesn't clearly flag which labor costs belong to employees versus contractors. But DISE requires a clean distinction — contractor costs go in "other items," not employee compensation.

Approach: Calculate the percentage of your workforce that represents employees (per the ASC 718 definition) versus non-employees, and use that to apportion compensation components common to both groups (base wages, bonuses). Components unique to employees — payroll taxes, pension costs, Social Security — should be fully attributed to employees regardless of any blended rate. Document the methodology and stress-test it for your specific workforce composition by function and geography.

Challenge 3: Inventory Costing Methods and Natural Expense Detail

Standard costing, LIFO, average cost, and retail inventory method each present their own challenges for DISE. Standard costing systems track costs at a product or SKU level using predetermined rates — so actual variances need to be allocated back to natural expense categories. Under RIM, the method approximates costs at a category or department level, which doesn't naturally yield the natural expense composition DISE requires.

Approach: Standard cost components and variances should be disaggregated based on their nature (material variances to purchases of inventory, labor variances to employee compensation, overhead variances split by nature). For RIM users, you may need to build a supplemental tracking layer to capture natural expense composition alongside the RIM calculation.

Challenge 4: Organizational Change Management

This is the one that gets underestimated. DISE requires sustained coordination between finance, HR, IT, procurement, and operations. People coding purchase orders in procurement, classifying workers in HR, and setting up asset depreciation in the fixed asset system all affect the accuracy of your DISE disclosures. They need to understand why.

Approach: Build DISE awareness into training for anyone whose day-to-day work touches the data. The investment is modest — a short briefing or training on why classification matters and what happens if it's inconsistent. The alternative is discovering errors at year-end.

Challenge 5: Quarterly, Not Just Annual

DISE is required every quarter. That's not just an annual close exercise — it requires infrastructure that can produce reliable, reviewed data in an interim reporting timeframe. If your close process is already stretched, adding a new tabular footnote to every 10-Q requires deliberate process design.

Approach: Design your process end-to-end with quarterly frequency in mind from the start. Build in review checkpoints that can run in parallel with your normal quarterly close. Don't build a process that only works in the unhurried environment of the annual audit.

Your Controls Need to Be Ready Too

DISE is a financial statement disclosure, which means it's within the scope of ICFR. You need controls designed and operating before your first disclosure — not just a reasonable process that you document after the fact.

Think about three control layers:

Source controls: Controls at the point of data entry in HR, procurement, and operational systems that ensure employee classifications are accurate, vendor transactions are coded correctly, and cost pools are maintained consistently.

Disaggregation controls: Controls over the calculations and classifications that transform raw data into the tabular disclosure — including allocation methodologies, estimates, and the classification of items into "other items" with appropriate qualitative description.

Management review controls: A reviewer with appropriate technical knowledge reviewing the full tabular disclosure before it's filed — does it make sense, does it reconcile to the income statement, is it consistent with prior periods, and does it align with what you know about the business this quarter?

One strong recommendation: engage your external auditors now, in 2026. Have conversations about your implementation approach, your key judgments, and your use of estimates. Getting feedback before you file your first 10-K is infinitely better than discovering disagreements during the audit.

Industry-Specific Watch-Outs

DISE is going to look different depending on your business model. A few areas where we're seeing elevated complexity:

Retail and Consumer Products

• Retail inventory method users need supplemental tracking to capture natural expense composition
• Complex distribution networks — inventory flowing through multiple DCs and fulfillment centers — make tracing natural expense composition challenging
• Significant seasonal labor (holiday staffing, summer workers) can create employee vs. contractor complexity
• Import-heavy companies need to decide whether tariffs and duties go in purchases of inventory or other items — and that decision has become more charged given current trade policy

Manufacturing

• Vertically integrated operations with intercompany inventory transfers need robust processes, systems, and controls to trace to original external purchases
• Standard costing systems need variance allocation methodologies aligned to DISE categories
• Companies with multiple ERPs from acquisition history face data aggregation challenges

Technology and Life Sciences

• Significant capitalized software and R&D costs — need to understand the asset-related expense principle (capitalized costs disaggregated when expensed based on nature at that time, not the original capitalized nature)
• High contractor/subcontractor usage means employee vs. non-employee distinction is significant and the voluntary disclosure question matters
• Collaborative R&D arrangements and funded research create expense reimbursement disclosure requirements
  

Let's Talk

DISE implementation touches accounting, systems, HR, operations, and investor relations. Embark's team brings deep technical accounting knowledge and real-world implementation experience to help companies work through the full scope of what this standard requires.

Whether you're just beginning your readiness assessment or you're already working through system changes, we can meet you where you are.

Reach out to the Embark team to talk through your DISE readiness and implementation plan.