FASB’s Investor Advisory Committee gives input on emerging issues, trends

The Financial Accounting Standards Board’s (FASB) Investor Advisory Committee met on May 25 to give its input on various FASB topics and trends.

Committee members discussed the FASB’s ongoing project on the disaggregation of performance information and what improvements could be made to the information currently listed on the income statement, according to a summary of the meeting.

One of the main improvements committee members requested is increased disaggregation of both the costs of goods sold (COGS) line item and the selling, general, and administrative (SG&A) expenses line item, it said.

Members explained that it’s very difficult to comprehend how changes in raw materials or labor costs affect COGS or SG&A expenses. The increased disaggregation should be both qualitative and quantitative, they said, noting that requiring an exact, quantitative breakdown of those line items may be difficult for certain companies.

Thus, they proposed using associated footnotes to disclose percentages or ranges for the individual items aggregated within COGS or SG&A expenses, according to the statement.

This additional information is crucial to understanding how particular business or market changes could affect a company’s growth or margin profile, members said. Understanding a company’s exposure to those changes would help investors better comprehend business models and allow for more detailed earnings forecasts.  

Some members explained that the disaggregation in COGS and SG&A is even more important because of the move to retail media advertising and cloud solutions. It could provide a greater understanding of a company’s intangible assets, they noted.

Other member suggestions included allowing for more consistency in the reporting and disaggregation of advertising expenses; providing broad principles for the presentation and reporting of COGS and SG&A expenses to improve comparability between companies; providing further disaggregation, either on the income statement or in the footnotes, and explanation of quarterly provision or reserve activity; and further disaggregation of other expense line items, according to the statement.

Members also discussed possible additional disaggregation, or changes investors would like to see for the statement of cash flows.

They mentioned various emerging issues and trends, as well, such as challenges stemming from the growth in new business models, like platform business models, which create value by facilitating exchanges between groups that utilize the platform. Ride-hailing services and food delivery companies are examples.