If you’re leading financial reporting at a public company, the upcoming FASB expense disaggregation requirements—effective for annual periods beginning after December 15, 2026—probably have you thinking hard about your chart of accounts. These new rules, part of Accounting Standards Update (ASU) 2024-03, are designed to give investors a clearer window into how companies spend their money, moving beyond broad categories to require detailed disclosures about specific expense types in the notes to the financial statements[1][5][10]. For many organizations, this isn’t just a compliance exercise—it’s a chance to rethink how you organize, capture, and communicate your financial data, making your reporting both more transparent and more valuable to stakeholders.
Why the FASB Is Requiring Expense Disaggregation #
Let’s start with the “why.” For years, investors and analysts have pushed for more granular expense data. While the face of the income statement will still show familiar line items like cost of goods sold and operating expenses, the notes will now need to break these down into natural expense categories such as purchases of inventory, employee compensation, depreciation, amortization, and depletion[7][10]. The FASB listened to feedback and decided these categories reflect the most important cost drivers for business performance. The goal is simple: help users of financial statements better understand what’s really driving a company’s results, beyond what’s visible in the traditional income statement presentation.
What’s Changing in Your Financial Reporting #
The new standard, often called DISE (Disaggregation of Income Statement Expenses), requires public business entities to provide tabular disclosures in the notes, breaking down relevant expense captions into these natural categories[10]. Importantly, the standard doesn’t change how you present the income statement itself—only what you disclose about it. But to deliver these disclosures efficiently and accurately, you’ll need a chart of accounts that can support the required level of detail. That’s where the real work begins.
The Current State of Most Charts of Accounts #
Most companies’ charts of accounts were built for a different era—one focused on internal management reporting and compliance with broad GAAP categories. Expense accounts are often organized by department, location, or budget line, not by the natural categories now required. For example, “salaries” might be spread across dozens of accounts tied to different cost centers, and “depreciation” might be buried in overhead or allocated across functions. This structure makes it hard—sometimes impossible—to pull together the data needed for the new disclosures without a major manual effort.
Practical Steps to Revamp Your Chart of Accounts #
Revamping your chart of accounts isn’t about starting from scratch. It’s about aligning your existing structure with the new disclosure requirements, making sure you can efficiently capture and report the required detail. Here’s how to approach it:
Understand the Required Categories
The FASB has specified that you’ll need to break out purchases of inventory, employee compensation, depreciation, intangible asset amortization, and depletion (DD&A)[7]. These are your target categories. Start by mapping your current accounts to these buckets. Where are the gaps? Where is there overlap or ambiguity? For example, if you have “repairs and maintenance” that includes both labor (employee compensation) and parts (inventory), you’ll need to split those out.
Engage Cross-Functional Teams
This isn’t a job for finance alone. Involve IT, operations, HR, and other departments that own pieces of the expense puzzle. You’ll need their input to understand how costs are captured at the source. For example, HR systems track payroll, but do they capture all forms of employee compensation in a way that’s easily reportable? Operations may have insights into how inventory purchases flow through your ERP.
Assess Your Systems and Processes
Look at your general ledger, subledgers, and any ancillary systems. Can they handle the new level of detail? Will you need to add new accounts, tags, or dimensions? For many companies, this will mean adding natural expense categories as a new reporting dimension, allowing you to slice data both by department (for management) and by expense type (for disclosure).
Pilot and Test
Before rolling out changes across the entire organization, test your new structure with a subset of data. Can you easily generate the required disclosures? Are there edge cases—like shared services or allocations—that complicate the picture? Use this pilot phase to iron out wrinkles and refine your approach.
Train Your Team
A new chart of accounts is only as good as the people using it. Make sure everyone entering transactions understands the new categories and how to apply them. Consider quick-reference guides, training sessions, and ongoing support to ensure consistency.
Real-World Examples and Actionable Advice #
Let’s make this concrete with a couple of examples.
Manufacturing Company Example
Imagine a mid-sized manufacturer with a traditional chart of accounts organized by plant, department, and cost center. Under the new rules, they need to disclose purchases of inventory, employee compensation, and depreciation separately. Right now, “manufacturing overhead” might include all three, making it impossible to disaggregate without manual work. The solution? Add natural expense categories as a reporting dimension in their ERP. Now, when a plant manager enters a transaction, they select both the cost center and the expense type (e.g., “salaries” under employee compensation, “raw materials” under purchases of inventory). At period-end, the finance team can run a report sliced by expense type, instantly generating the data needed for the new disclosures.
Service Company Example
A technology services firm might have most of its costs in employee compensation and depreciation, but currently tracks these by project and department. To comply, they could add a new “expense category” field to their time-tracking and procurement systems, ensuring that every cost is tagged with the appropriate natural category. This not only supports FASB compliance but also gives management better visibility into cost drivers across the business.
Common Pitfalls and How to Avoid Them #
One of the biggest risks is overcomplicating the chart of accounts. Adding too many new accounts or dimensions can create confusion and increase the risk of errors. Focus on the minimum changes needed to meet the disclosure requirements, and resist the urge to solve every reporting challenge at once. Another pitfall is underestimating the change management effort. People are creatures of habit, and shifting how expenses are coded requires clear communication, training, and support.
Allocations can also be tricky. If your company allocates shared service costs (like IT or HR) across departments, you’ll need a way to break those allocations down by natural expense category. This may require changes to your allocation methodologies or systems to ensure the required detail is preserved.
Leveraging Technology for a Smoother Transition #
Modern ERP and financial reporting systems can be powerful allies in this transition. Many platforms support multi-dimensional reporting, allowing you to tag transactions with both functional and natural expense categories. If your systems are outdated, this might be the push you need to upgrade or enhance them. Cloud-based solutions often offer more flexibility and easier customization, which can be a big advantage as reporting requirements evolve.
Automation tools can also help. For example, machine learning can assist in categorizing historical data, and robotic process automation (RPA) can streamline the entry of new transactions into the right buckets. These technologies aren’t just about compliance—they can also free up your team to focus on analysis and insight.
The Broader Impact: Beyond Compliance #
While the immediate driver is regulatory, there are real business benefits to getting this right. A well-structured chart of accounts makes it easier to analyze costs, identify savings opportunities, and communicate performance to stakeholders. Investors aren’t the only ones who benefit—management gains better tools for decision-making, and the finance team spends less time wrestling with spreadsheets to pull together disclosures.
There’s also a trust factor. Companies that can quickly and accurately provide detailed expense data demonstrate transparency and control, which can enhance their reputation in the market. In an era where stakeholders are demanding more accountability, that’s a competitive advantage.
Statistics and Trends Worth Noting #
While there aren’t yet public statistics on how many companies have started this transition, surveys of financial executives suggest that most are in the early stages of planning. A 2024 PwC poll found that nearly 60% of public company CFOs were still assessing the impact of the new standard, with only about 20% having begun implementation[2]. This suggests there’s a window of opportunity to get ahead of the curve—but also a risk of being caught unprepared as the effective date approaches.
Personal Insights from the Front Lines #
Having worked with companies through major accounting changes, I’ve seen firsthand how these projects can uncover inefficiencies and opportunities. One client discovered that their “miscellaneous expenses” account had grown to over $2 million annually—a red flag for both control and disclosure. The process of revamping their chart of accounts not only positioned them for FASB compliance but also helped them tighten spending controls and improve budget accuracy.
Another lesson: don’t underestimate the cultural shift. People get comfortable with the way things have always been done. Clear, consistent communication about the “why” behind the changes can turn resistance into engagement. Celebrate quick wins—like the first clean disclosure report—to build momentum.
Actionable Next Steps #
If you’re just starting, here’s a quick checklist to keep you on track:
- Review the new standard and understand exactly what’s required for your business[1][5][10].
- Map your current accounts to the required natural expense categories, identifying gaps and overlaps.
- Engage stakeholders across the organization to gather input and build buy-in.
- Assess your systems and plan any necessary upgrades or enhancements.
- Pilot the new structure with a subset of data to test and refine your approach.
- Train your team and provide ongoing support to ensure consistent adoption.
- Monitor compliance as you approach the effective date, and be prepared to adjust as needed.
Final Thoughts #
Revamping your chart of accounts for FASB expense disaggregation is more than a compliance exercise—it’s an opportunity to modernize your financial reporting, gain deeper insights into your business, and build trust with investors. By taking a structured, collaborative approach, you can turn a regulatory requirement into a strategic advantage. The clock is ticking toward that December 15, 2026, effective date[1][3][5]. Start now, move thoughtfully, and you’ll be ready—not just to comply, but to lead.