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Private Companies Getting a Pass from Coming FASB Proposal on Disclosure of Income Statement Expenses

Denise Lugo  Editor, Accounting and Compliance Alert

· 5 minute read

Denise Lugo  Editor, Accounting and Compliance Alert

· 5 minute read

Private companies should be exempted from the FASB’s coming proposal that aims to ratchet up disclosure rules for income statement expenses, the Private Company Council (PCC) said on April 25, 2023, aligning with the board’s recent decision.

In agreeing with the board’s decision, PCC members noted the strong role that the Private Company Decision-Making Framework (PCDMF) played in helping the FASB to decide to exclude private companies from the changes.

“I do think this was the right decision to make at this particular time, and monitoring is always appropriate to see how a standard is applied in practice and to see if there needs to be something done with the private company space,” PCC Chair Candace Wright said. “So appreciate the team doing a good job and analyzing the PCDMF and making this recommendation and the board listening – so thank you.”

Financial statement users on the PCC also agreed with the board’s decision, throwing support behind monitoring the issue for the private company sector.

“I think the factors are there for the exclusion of private companies but I appreciate the fact that we will monitor because as a user of the financial statements I think there is a level of disaggregation that would be useful in private company space; I just don’t know if it’s the same level of disaggregation that’s currently going to be included in this at the public level,” David Pesce, head of surety at Munich Re Specialty Insurance, said. “And I appreciate that we will watch it and reconsider it at a future date if it looks like it’s something we need to do.”

The PCC is an 11-member body that works with the FASB to develop rules for private companies, the largest business demographic in the U.S.

High-level Snapshot of Planned Proposal

The board plans to propose that public companies disaggregate expense captions presented on the face of the income statement into specified expenses categories (including employee compensation, depreciation and amortization), and further disaggregate inventory expense and other manufacturing expenses based on costs incurred in the current period.

Under this approach, users of financial statements would receive quantitative information on, for example, how much employee compensation is charged to different expense captions such as cost of sales, selling, general and administrative expenses (SG&A) and research and development (R&D) when those captions are presented on the face of the income statement.

The proposal would also require companies to disclose the amount of inventory expense and other manufacturing expenses included in each expense caption, and then “to further disaggregate the amount of inventory expense and other manufacturing expenses into specified categories of cost incurred that are falling into inventory in the current period or expensed as incurred as part of the manufacturing process.” Those cost incurred categories would include inventory purchases, employee compensation, depreciation, and amortization.

The board decided that all additional disaggregation would be provided in footnote disclosures – i.e., not to change the requirements for what is presented on the face of the income statement.

Moreover, the proposal would clarify descriptions of what would be considered depreciation and amortization for the standard, requiring prospective transition with a retrospective option. The guidance would apply to both interim and annual periods. Public companies will get 90 days to submit comments.

PCDMF Issues Weighed by the Board

In deciding to scope private companies out of the proposal, the FASB considered the PCDMF and balanced the relevance of information to users of private company financial statements, against the cost that would be incurred by private companies to provide that information, according to the discussions.


  • the PCDMF specifies that if a disclosure provides relevant information at a reasonable cost, then generally no disclosure alternatives for that information should be considered. However, several FASB members questioned whether private companies could provide the disclosures at a reasonable cost;
  • the PCDMF contemplates generally not requiring disclosure of quantitative details about the composition of certain income statement line items. If that information is relevant the PCDMF suggests narrative disclosure. However, the FASB decided that a narrative disclosure of the proposed requirements would not be as useful to users;
  • while the PCDMF specifies that management access should not be considered a dominant factor, the FASB acknowledged that lenders that may be the typical users of private company financial statements generally do have a level of access to obtain additional information from management.


This article originally appeared in the April 26, 2023 edition of Accounting & Compliance Alert, available on Checkpoint.

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