The Impact of IFRS 18 and DISE on Expense Reporting

New Income Statement Standards

On April 9, 2024, the International Accounting Standards Board (IASB) issued new guidance that standardizes the way public business entities present their financial results in the income statement or statement of profit and loss (P&L). The new standard, called International Financial Reporting Standard 18, Presentation and Disclosure in Financial Statements (“IFRS 18”), replaces previously-issued guidance in International Accounting Standard 1, Presentation of Financial Statements. IFRS 18 includes provisions related to the disaggregation of financial statement line items, presented categories and subtotals of income and expenses, and disclosures surrounding management-defined performance measures (MPMs).

In November 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2024-03, Disaggregation of Income Statement Expenses, or DISE, which updates income statement expense reporting for public companies that report under US generally accepted accounting principles (“US GAAP”). The ASU does not create new expense captions in the income statement directly but requires disaggregation of certain expense captions in the footnotes to the financial statements.

The remainder of this article provides an overview of both the new IFRS and US GAAP expense presentation requirements, compares the impacts of each, and considers how the new standards create further convergence or divergence between US GAAP and international financial reporting standards.

Overview of IFRS 18 Income Statement Reporting Requirements

IFRS 18 is meant to help resolve issues of comparability and transparency in financial reporting for investors. The standard particularly focuses on the statement of profit and loss by creating a required structure and standardized subtotals to increase comparability for investors using the P&Ls of multiple companies for analysis. According to the IASB Chair Andreas Barckow, “IFRS 18 represents the most significant change to companies’ presentation of financial performance since IFRS Accounting Standards were introduced more than 20 years ago.”

IFRS 18 introduces five standardized categories of income and expenses:

Operating – includes all income and expense items not classified in any other category; it is essentially a “catch-all” category.
Investing – includes income and expenses related to assets that generate a return independently from the firm’s other resources. Examples might include gains or losses on disposals of joint ventures or dividends from ownership in other companies.
Financing – includes subcategories of income and expenses for financing liabilities used to raise capital (bonds, loans, etc.) and for non-financing liabilities (pensions, lease liabilities, etc.)
Income Taxes – includes income tax expense based on IFRS 12 and foreign exchange differences.
Discontinued operations – includes income and expenses from discontinued operations based on IFRS 5.

In addition to the above, the standard has specific applications for companies whose primary business activities include financing-related activities (e.g., financial services companies) or investing-related activities (e.g., real estate companies).

IFRS 18 also responds to investor needs by creating two standardized subtotals of profit or loss: Operating profit and Profit before financing and income taxes. Operating profit appears after the operating section of the P&L but before the investing section. Profit before financing and income taxes appears after the investing section but before the financing section. Figure 1 below from the IFRS 18 Project Summary provides an illustration of the intended organization of the P&L going forward.

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Figure 1: IFRS 18 Project Summary P&L Illustration

The IASB has noted through its research that while many companies already report a subtotal for operating profit, not all do. Further, entities that have historically reported operating profit do not necessarily calculate it in the same way. Thus, the above organizational requirements will help investors by providing a clearly defined measure of operating performance and allowing for comparison between companies with widely varying capital structures.

Additionally, IFRS 18 provides detailed requirements for expenses disclosed in the operating section of the P&L. Companies may aggregate operating expenses by either nature or function:

By nature – based on the economic resources used (raw material expense, salaries, depreciation, etc.)
By function – based on the activity the expense relates to (cost of sales, salaries, etc.)

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Which Industries Prefer Which Expense Classifications?

If expenses are aggregated by function, companies must disclose specific expense categories including depreciation, amortization, employee benefits, impairment losses, and inventory write-downs in the footnotes. This requirement aligns with certain aspects of FASB’s DISE standard, further outlined below.

Overview of FASB’s Disaggregation of Income Statement Expenses (DISE)

ASU 2024-03 is meant to provide investors with additional insight into the operating performance and future cash flows of public business entities as well as increased comparability of financial results. DISE focuses on breaking down relevant expense captions, which are simply the expense line items listed on the income statement that have certain expense categories in them. The ASU includes the following important provisions related to the income statement:

Disaggregation of Certain Expenses – Entities must disclose amounts for the following included in each relevant expense caption on the income statement:
- Purchases of inventory
- Employee compensation
- Depreciation
- Intangible asset amortization
- Depreciation, depletion, and amortization (DD&A) for oil and gas activities (or other depletion expenses)
Inclusion of Existing GAAP Disclosures – Entities must include certain items they already disclose under GAAP in the same tabular disclosure as the new disaggregation requirements. For example, a company already disclosing property, plant, and equipment impairment should include this amount in the same table as the newly required disaggregated expense amounts. See the FASB in Focus summary for a detailed illustration of this requirement.
Qualitative Description of Remaining Amounts – Provide a qualitative description of any remaining amounts in relevant expense captions that aren't disaggregated separately.
Disclosure of Selling Expenses – Entities must disclose total selling expenses in every reporting period and define selling expenses in their financial statements annually.

While DISE does not completely reorganize income statement expenses like IFRS 18, it does specifically mirror IFRS 18’s requirement to disclose certain expenses in the footnotes. DISE calls for disaggregation of any expense captions that contain more than one required “natural expense” category. Natural expense categories are simply expenses grouped by the type of related economic benefit. For example, depreciation expenses are recognized over the period in which the entity benefits from the related assets. If an expense caption on the income statement is only made up of one of the required natural expense categories, it does not have to be further disaggregated. This treatment is comparable to how IFRS 18 mandates disaggregation of expenses that are aggregated by function and contain more than one natural expense category.

Comparison of Disclosure Requirements of IFRS 18 and US GAAP’s DISE Standard

The following table provides a summarized view of the similarities and differences between expense reporting under IASB’s IFRS 18 and FASB’s US GAAP with updates from DISE (ASU 2024-03):

Aspect	IFRS 18	US GAAP (with ASU 2024-03)
Effective Date	Annual and interim periods starting in 2027	Annual periods starting in 2027 and interim periods starting in 2028
Who is Affected?	All entities reporting under IFRS	All public US business entities
Application Method	Retrospective	Either prospective or retrospective
Selling Expenses	If an entity classifies operating expenses by function and has a cost of sales function, it must include a cost of sales line item	Must disclose total selling expenses in the footnotes and define selling expenses annually
Presentation of Expenses	Aggregation by nature or function based on decision usefulness to investors	Current SEC regulations require public entities to aggregate expenses by function (cost of sales, administrative expenses, etc.)
Disaggregation in Notes	Required for function-based expense presentation Includes disclosure of depreciation, amortization, employee benefits, impairment losses, and inventory write-downs amounts included in each function-based expense	Required for all relevant expense captions Includes disclosure of inventory purchases, employee compensation, depreciation, intangible asset amortization, and DD&A amounts included in each relevant expense caption
Expense Categories	Expenses are explicitly classified as operating, investing, and financing	No required categories, though similar classification exists in the statement of cash flows
P&L Subtotals	Standardized profit and loss subtotals required. Includes Profit before financing and taxes, similar to the non-GAAP measure Earnings before interest and taxes	Does not change income statement subtotals. Current US GAAP and SEC regulations do not explicitly require specific subtotals

Convergence and Divergence of US GAAP and IFRS Reporting Requirements

The following table outlines ways US GAAP and IFRS are converging and diverging because of the new reporting requirements in IFRS 18 and updates to US GAAP from DISE.

Convergence	Divergence
Both IFRS 18 and DISE require increased transparency in expense reporting starting in 2027.	IFRS will require expenses to be classified into categories such as operating, investing, and financing while US GAAP will not impose such classifications.
Both require disclosure of natural expenses in the footnotes (if not on the face of the financial statements).	IFRS will continue to allow aggregation of expenses by nature while SEC regulations only permit aggregation by function (other than depreciation expense).
Both require explicit disclosure of selling expenses (if applicable and if expenses are classified by function under IFRS).	IFRS will have explicitly standardized income subtotals and P&L format, whereas US GAAP does not have any pending updates to require specific income subtotals. However, US public entities rely heavily on common practices and SEC regulations and guidelines to prepare informative and comparable financial statements.

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Conclusion

IFRS 18 and DISE will significantly impact income statement presentation and disclosures, introducing both alignment and differentiation between reporting requirements under US GAAP and IFRS. While both updates enhance transparency through expense disaggregation, IFRS 18 goes further by imposing structured categories and standardized P&L subtotals. The long-term impact of these changes will depend on how companies implement these new standards and whether investors find the additional disclosures beneficial. Future FASB and IASB standards will further shape the trajectory of convergence or divergence between the two frameworks, ultimately influencing comparability and the usefulness of financial information for decision-making.

References

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IFRS 18, Presentation and Disclosure in Financial Statements
1. IFRS 18 Supporting Material
2. Deloitte, IASB publishes new standard on presentation
3. Deloitte Heads Up, FASB Issues Final Standard on Disaggregation of Income Statement Expenses (DISE)
4. PwC Viewpoint – Global, IFRS 18 is here: redefining financial performance reporting
5. IFRS 18 Project Summary
6. IFRS.org, New IFRS Accounting Standard will aid investor analysis of companies’ financial performance
7. IFRS 18 Project Summary
8. IFRS 18 Project Summary‍

9. IFRS.org, New IFRS Accounting Standard will aid investor analysis of companies’ financial performance
10. IFRS Staff Paper AP21B, Analysis of expenses by function and by nature
11. ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures
12. ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures
13. FASB in Focus, Disaggregation of Income Statement Expenses (DISE)
14. Deloitte Heads Up, FASB Issues Final Standard on Disaggregation of Income Statement Expenses (DISE)
15. PwC Viewpoint 15.6, Income statement and statement of comprehensive income

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