Preparing your Chart of Accounts (CoA) for the FASB’s 2026 disaggregated expense disclosure requirements is a crucial step to ensure your financial reporting stays compliant and transparent. The new rules demand more granular breakdowns of expenses on the income statement, which means you’ll need to rethink how your accounts are structured and how data is captured. This isn’t just about compliance; it’s about giving investors and stakeholders clearer insights into your cost structure and operational performance.
The FASB’s update (ASU 2024-03) targets public companies and requires them to disclose detailed information about specific expense categories such as inventory purchases, employee compensation, depreciation, and amortization, among others[1][3]. These disclosures must be presented in a tabular format in the notes to the financial statements, along with qualitative descriptions of other amounts that aren’t separately disaggregated[5][9]. The effective date for public companies starts with fiscal years beginning after December 15, 2026, with interim disclosures required in 2027[1][10].
To get your Chart of Accounts ready, here’s a practical approach that combines technical preparation with actionable advice, peppered with examples to help you visualize the process.
Start by reviewing your current Chart of Accounts to identify how expenses are currently categorized. Most companies lump expenses into broad buckets like Cost of Goods Sold (COGS) and Selling, General, and Administrative (SG&A). Under the new FASB requirements, you’ll need to break these down further. For example, within COGS, you should have separate accounts or sub-accounts for:
Purchases of inventory
Employee compensation related to production
Depreciation and amortization of manufacturing equipment
This level of granularity helps when assembling the disaggregated expense tables required by the FASB[3][6]. If your CoA doesn’t currently capture this detail, you might have to create new accounts or sub-accounts aligned with these categories.
Next, evaluate how you capture and track these expenses operationally. It’s not enough to just have the accounts; your accounting system needs to reliably capture the data behind each expense category. For instance, if depreciation is currently recorded as a lump sum for all assets, consider separating depreciation related to manufacturing equipment from that related to office assets. This separation can be done either by assigning different asset classes or cost centers to generate accurate expense data for disclosure purposes.
A practical example: Suppose your company has a manufacturing line and corporate offices. Depreciation on factory machinery should be tracked separately from office equipment depreciation to meet FASB’s requirement to disclose depreciation in relevant expense captions[5][8].
Another key element is deciding on the basis for disclosing inventory-related expenses. The FASB allows entities to elect between a cost-incurred basis and an expense-incurred basis for inventory purchases[3][6]. The cost-incurred basis includes changes in inventory balances as a reconciling line item in the disaggregated table, while the expense-incurred basis focuses on expenses recognized during the period without the inventory balance adjustments. Your finance team should evaluate which method better fits your accounting processes and reporting needs, keeping in mind that estimates or reasonable approximations are permitted if exact numbers aren’t available[3].
Once your accounts and tracking mechanisms are set, it’s time to update your financial reporting templates and disclosure processes. Since the new disclosures must be presented in the notes in a tabular format, ensure your reporting tools can generate these tables efficiently. Automating this process reduces the risk of errors and saves time during audits. For example, linking your general ledger accounts directly to the disclosure templates will enable smoother aggregation and reconciliation of expense categories.
Also, prepare to provide qualitative descriptions for expense amounts that aren’t separately disaggregated quantitatively. This narrative helps explain “other” categories that inevitably remain after breaking out required expense components[5][9]. Work with your accounting and operational teams to document the nature of these residual expenses clearly.
It’s worth noting that these changes will affect your internal controls and audit readiness. The PCAOB guidelines emphasize accuracy and completeness in financial disclosures, so involve your internal audit or compliance teams early to design controls around data collection, account classification, and disclosure preparation[1]. Regular walkthroughs and test reconciliations before year-end 2026 will help identify gaps and fix them proactively.
From a broader perspective, the move to disaggregated expense disclosures reflects growing investor demand for transparency. According to research and feedback considered by FASB, investors want to better understand cost drivers and performance trends to make informed decisions[1][4]. By preparing your Chart of Accounts now, you’re not just ticking a regulatory box — you’re aligning your financial reporting with evolving best practices that can improve stakeholder trust.
Here are some actionable steps to guide your preparation:
Map existing accounts to new disclosure categories: Create a crosswalk between your current CoA and the FASB-required expense categories.
Create or revise sub-accounts where needed: Especially for inventory purchases, employee compensation, depreciation, and amortization.
Implement cost centers or project codes: To attribute expenses accurately to their respective categories.
Train your accounting team: On the new reporting requirements and the importance of accurate account coding.
Test reporting outputs early: Generate mock disaggregated expense disclosures using your current data to identify gaps.
Document assumptions and estimates: For expense categories where exact data is unavailable, as permitted by FASB.
Coordinate with auditors early: To get feedback on your disclosure approach and make adjustments before the first reporting period.
Keep in mind that while these requirements currently apply only to public companies, private companies should monitor developments closely, as FASB may extend similar rules in the future based on public companies’ experiences[1].
In summary, preparing your Chart of Accounts for FASB’s 2026 disaggregated expense disclosure requirements means increasing your expense detail, aligning account structures with disclosure categories, updating tracking and reporting processes, and ensuring internal controls support accurate and timely disclosures. By starting early and involving key stakeholders, you’ll avoid surprises and position your company for smoother compliance and clearer communication with your investors.