On October 30, 2023, the Center for American Progress submitted comments to the Financial Accounting Standards Board (FASB) regarding its proposal to require companies to provide more detailed disclosures of certain types of expenses on their income statements. While supporting the enhanced disclosures, CAP strongly opposes the FASB’s exclusion of private companies from the enhanced requirements.
The FASB is a private standard-setting body that oversees the generally accepted accounting principles that U.S. companies follow when preparing financial statements for public and private purposes. Those statements include the income statement, the balance sheet, and the cash flow statement. The income statement provides information on the firm’s revenue, expenses, gains, and losses over a specified period, such as a quarter or a year. It provides critical insight into how well the company is performing on a more granular level than just the bottom line. For example, as stated in the proposal, expense entries on the income statement speak to the company’s performance—how much it spent to earn the revenue it received that period—and may also help lenders, investors, and others who might use the statement determine whether and how much the firm is spending on items that could affect future cash flows, such as investments in clean technologies.
In response to investor requests, the proposal would appropriately require companies to provide more granular information under many of the commonly presented expense captions, thus enabling investors, creditors, and business partners to better understand the details of those expenses and make their own judgments about the firm’s performance and future cash flows. However, the board decided to exclude private companies from the proposal’s requirements.
The modest improvements in expense disaggregation are long overdue; yet CAP found the decision to exclude private companies from the enhanced requirements arbitrary and unsupportable, particularly in light of the growth of private companies and markets.
Click here to read CAP’s comment letter.
For more on this topic, see CAP’s report