Last week we looked at two SEC proposals that would reduce what public companies have to disclose. This week, the other direction.

FASB’s expense disaggregation standard takes effect for annual periods beginning after December 15, 2026. For a calendar-year company that is the FY2027 annual report, filed in early 2028. Interim periods follow a year later.

Eighteen months away, on the face of it. Except that the disclosure has to cover the full year, and the year starts on January 1.

You cannot retroactively disaggregate expenses your general ledger never tagged.

If you are private, do not skip this one. What the standard actually requires is the ability to report expenses by natural type within each function — payroll inside cost of sales, payroll inside SG&A, and so on. That is a chart of accounts question, not a filing question. It is cheap to build while you are private and expensive to reconstruct under audit later, and it is the same capability a buyer, a lender or an S-1 will eventually ask you for.

The face of your income statement does not change. What changes is a new tabular disclosure in the notes, and it works backwards from the captions you already present.

Take any expense caption on the face of the income statement — cost of sales, SG&A, research and development — and ask whether it contains any of five things: purchases of inventory, employee compensation, depreciation, intangible asset amortisation, or depreciation, depletion and amortisation from oil and gas producing activities. If it contains any of them, it is a relevant caption, and it has to be broken out in a table.

Whatever is left inside that caption and does not fit one of the five categories goes into a residual line, with a qualitative description of what it consists of. Separately, you disclose total selling expenses, and once a year you disclose your own definition of what you count as selling expenses.

That last requirement is worth reading twice. There is no GAAP definition of selling expenses. You will be publishing yours.

Here is the shape of the problem. Most general ledgers are built to answer the question the income statement asks: what did this function cost? Cost of sales, SG&A, R&D — each accumulates the payroll, the depreciation and the purchased inputs that belong to it, and the caption total is what gets reported.

The standard asks a different question. Not what did this function cost, but what natural expense types are sitting inside it. Employee compensation is not one number for the business; it is a number inside cost of sales, a number inside SG&A, and a number inside R&D, and now each of those has to be visible separately.

For a company whose chart of accounts already tags compensation by function, this is a reporting exercise. For a company whose payroll allocation happens in a spreadsheet at period close, or is embedded in standard costing, or sits in an overhead pool that gets absorbed, it is a systems project.

And it is a systems project with a January start date, because the FY2027 disclosure needs FY2027 data. Retrospective application is permitted but not required — and applying it retrospectively means reconstructing the same detail for prior periods, which is harder, not easier.

Smaller public companies. A chart of accounts that has never needed to split employee compensation across three captions will not do it because a standard now requires it. This is the population that has the least finance infrastructure and, under the SEC’s filer status proposal we covered last week, is about to have the least oversight of it.

Companies with multiple revenue streams. The number of relevant captions is driven by how many expense captions you present, which is often a function of how you present revenue. A company reporting three revenue lines with three matched cost lines has three relevant captions to disaggregate, not one. Presentation choices made years ago for revenue reasons now determine the size of the disclosure exercise.

Private companies that want optionality. An S-1 filed in 2028 carries audited historical financial statements, and those historicals will need to support this disclosure for periods when the company was private and nobody was asking. A company intending to list in the next two or three years is inside the window now, with no regulator telling it so.

The same logic reaches further than listings. Valuations get built off public comparables, and when those comparables start publishing compensation load by caption, the people modelling you will have that detail on your peers and will start expecting it from you. Diligence questions follow disclosure practice with a lag. A sale process, a refinancing or an institutional round three years out is all the reason needed to have the data.

The standard is a disclosure requirement, but it is also a publication.

Compensation load by caption tells a reader how much of your cost of sales is people rather than materials. It tells them what proportion of SG&A is headcount. Across two or three years it tells them the direction of travel on both. Competitors will read it. So will acquirers, and so will anyone building a case that your cost structure is heavier than it looks.

None of that is a reason to object to the standard. Investors have asked for this information for years, and the argument that functional captions conceal more than they reveal is a fair one. But it is a reason to know what your table will say before it is filed, rather than after.

Our take: the compliance date is 2028 and the operational date is January. Between now and then the questions are ordinary ones — can your ledger produce this, who owns the project, and what does the output look like. The finance function that runs its first table this autumn, on FY2026 data nobody will see, will find out what it needs to fix while fixing it is still cheap.

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· The reader vote on quarterly reporting. Of the 44 of you who voted last week, only six would keep filing a full quarterly report if the requirement were lifted. Fifteen would drop the filing but keep publishing key metrics; fourteen would stop quarterly reporting altogether; nine said it would not be their call. The CFA Institute’s survey found around a third of investors expect companies would keep filing voluntarily. Our readers say one in seven.

· The labour market cracked, and the Fed’s job got harder. July payrolls FELL by 23,000 against a consensus expecting a gain of 83,000, and May and June were revised down by a combined 103,000. The 12-month average is now 34,000 a month. Unemployment slipped to 4.1%, but for the wrong reason — participation fell to 61.4%, its lowest in more than five years, and the employment-to-population ratio hit its lowest since 2014. Read the participation rate before the headline: a labour market shrinking because workers are leaving it is a different planning input from one that is simply cooling.

· Private equity is concentrating, not retreating. First-half sponsor deal count fell sharply against 2025 while aggregate value rose — fewer, larger transactions. Corporate M&A in the Americas ran up substantially over the same period, so strategic buyers are taking share from financial ones. The reason sits on the other side of the ledger: a record sponsor exit backlog, with thousands of portfolio companies held five years or longer.

· The rate path. Odds of a September increase have collapsed — 67% on 31 July, 45.9% by 10 August, and around 40% now. The jobs report did it, and not by solving inflation: oil is still where it was. What changed is the balance, because a contracting labour market gives the employment half of the mandate weight it did not have a month ago, and hiking into it looks a great deal riskier than it did. Six weeks ago the market put 82% on a move by September. When we asked, only a quarter of you picked September and a third said no move at all this year. The curve has come to you — though if energy prices hold and payrolls keep falling, the Fed ends up caught between the two halves of its mandate, which is a worse planning environment than either outcome.

1. How many relevant captions do you have? Count the expense captions on the face of your income statement within continuing operations. For each, ask whether it contains inventory purchases, employee compensation, depreciation, intangible amortisation or oil and gas DD&A. Every caption that does is a table row set of its own. Companies presenting multiple cost lines against multiple revenue streams should do this count first, because it determines the size of everything that follows.

2. Can your ledger already answer the question? Ask whoever owns the chart of accounts a single question: can you produce employee compensation, split by income statement caption, for the last completed quarter, without a manual allocation. If the answer involves a spreadsheet, you have a project rather than a disclosure.

3. Where does compensation actually get absorbed? Standard costing, overhead pools and capitalised labour all bury compensation inside other numbers. Note that amounts initially capitalised as an asset other than inventory are carved out — the subsequent amortisation of capitalised software sits wholly in amortisation, and you do not have to identify the compensation originally inside it. Know which of your pools are in scope and which are not.

4. What is your definition of selling expenses? There is no GAAP definition, so yours becomes the disclosure. Draft it now, while it is an internal document rather than a filed one, and check that it matches how you talk about selling costs on earnings calls.

5. What will the table say about you? Build it once on FY2026 data, in a spreadsheet, purely internally. Look at compensation as a share of cost of sales. Look at the residual line and what it forces you to describe. If anything in that table would prompt a question you would rather not answer for the first time under audit, you now have a year to decide how to answer it.

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Most standards arrive with a compliance date and a filing template. This one arrives with a compliance date, a filing template, and a quiet requirement that your accounting system already knows something it may not know.

One question before you go: could your ledger produce employee compensation by income statement caption today, without a manual allocation?

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The Editors hold no position in any company mentioned.

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