Ask most small business owners what "SG&A" means and you'll get a shrug. Ask an investor evaluating your company for acquisition, and it's the first line item they'll want torn apart. That gap — between how founders track spending and how sophisticated buyers, lenders, and public markets expect it to be tracked — is about to get codified into federal accounting rules, and it's worth understanding well before you're staring down a due diligence checklist.
In November 2024, the Financial Accounting Standards Board (FASB) finalized ASU 2024-03, a rule requiring public companies to break their income statement expense captions into far more granular pieces in the footnotes of their financial statements. It's officially called "Disaggregation of Income Statement Expenses," and accountants have already nicknamed it DISE. On paper, it applies only to public companies. In practice, it's about to reshape what "good enough books" means for any private company hoping to sell, raise debt, or go public in the next few years.
What ASU 2024-03 Actually Requires
Today, most income statements group expenses into broad captions: cost of sales, selling, general and administrative (SG&A), research and development, and so on. A reader can see the total, but not what's inside it. ASU 2024-03 doesn't change how those captions appear on the face of the income statement — but it requires a new footnote table that breaks each relevant caption down into standardized components, including:
- Purchases of inventory — the cost of raw materials and other externally purchased inputs
- Employee compensation — wages, bonuses, payroll taxes, and benefits
- Depreciation on property, plant, and equipment
- Intangible asset amortization
- Depletion, for companies in oil, gas, and mining
Any remaining, un-disaggregated amount in a caption also has to be described in words if it's material. The intent is straightforward: investors have been asking for years for more visibility into what actually drives a company's cost structure, rather than a single lump SG&A number that could hide anything from a headcount problem to a facilities lease going sideways.
Who it applies to and when: ASU 2024-03 covers public business entities. It takes effect for annual reporting periods beginning after December 15, 2026, and for interim (quarterly) periods beginning after December 15, 2027 — with early adoption allowed. FASB later issued ASU 2025-01 specifically to clarify how those dates apply to companies with non-calendar fiscal years, which tells you how much attention this standard is already getting from preparers.
Why This Matters If You're Not a Public Company
If you run a private business, your first reaction might be to file this under "not my problem." Here's why that's a mistake if a sale, institutional loan, or IPO is anywhere on your horizon.
Acquirers benchmark against public-company disclosure norms. Once disaggregated expense data becomes standard for public companies, it becomes the reference point buyers use when evaluating private targets. A private equity firm or strategic acquirer doing diligence on your business will increasingly expect to see compensation, depreciation, and cost-of-goods components broken out cleanly — not because you're legally required to disclose it, but because that's the shape of analysis they're used to running. Books that can't produce this breakdown quickly signal more diligence work, which shows up as lower offers or slower closes.
Lenders are moving the same direction. Loan covenants increasingly reference adjusted EBITDA calculations that require exactly this kind of expense granularity — separating out one-time items, distinguishing cash compensation from equity comp, isolating depreciation and amortization add-backs. A lender's underwriting team asking "can you show me compensation expense embedded in cost of sales versus SG&A" is asking a DISE-shaped question, standard or not.
IPO readiness has a long runway, and this is now part of it. Companies that go public don't start building GAAP-grade reporting the year they file an S-1 — they typically spend two to three years getting their financial infrastructure ready, doing mock closes and identifying reporting gaps well in advance. If a liquidity event is a realistic multi-year goal, the chart of accounts changes needed to support expense disaggregation belong on that roadmap now, not as a fire drill later.
The gap is expensive to fix under pressure. The common failure mode isn't ignorance of the rule — it's discovering during due diligence that your general ledger simply wasn't built to answer "how much of our cost of sales is inventory purchases versus labor versus overhead." Reconstructing that history after the fact, across multiple years, under a due-diligence deadline, is far more painful than tagging transactions correctly as they happen.
The Chart-of-Accounts Problem Hiding Underneath
The mechanical challenge with DISE-style reporting is rarely the disclosure itself — it's that most small business charts of accounts weren't designed to answer these questions in the first place. A typical QuickBooks or Xero setup might have a single "Payroll Expense" account that blends together compensation embedded in cost of goods sold, SG&A, and R&D, with no way to split it by function without manually reclassifying transactions after the fact.
Getting ahead of this means rethinking your account structure now, while the volume of historical data is still manageable:
- Tag compensation by function at the point of entry, not retroactively. If an employee's time spans production and administration, split their payroll entries (or use a consistent allocation method) as you book them, not two years later when a buyer asks for it.
- Separate depreciation and amortization from the operating expense lines they're embedded in. Many small businesses bury depreciation inside "Equipment" or lump it into COGS without a distinct sub-account. A dedicated depreciation account per asset class makes future disaggregation trivial.
- Distinguish inventory purchases from other cost-of-sales components. If raw materials, freight-in, and direct labor are all smashed into one "COGS" line, you'll need to unwind that manually for any buyer or lender review.
- Keep a written policy for how you categorize borderline expenses. Consistency matters more than perfection — a documented, consistently applied method survives diligence scrutiny far better than ad hoc judgment calls that change year to year.
This is exactly where the format of your books, not just their content, starts to matter. When your chart of accounts and transaction history live in a structured, version-controlled plain-text ledger rather than being locked inside a proprietary database, adding a new sub-account or re-tagging a category of historical transactions is a straightforward, auditable change — you can see precisely what shifted and when, which is the kind of transparency that due diligence teams and auditors actually want to see.
A Before-and-After Example
Picture a $12 million manufacturing company with a single "SG&A" line of $2.4 million on its income statement. Under today's reporting norms, that's the whole story — a buyer sees one number and has to ask a dozen follow-up questions to understand what's inside it.
Disaggregated, that same $2.4 million might break down as:
- Employee compensation: $1.5 million
- Depreciation on office and warehouse equipment: $210,000
- Software and intangible amortization: $95,000
- Remaining SG&A (rent, insurance, professional fees, etc.): $595,000
Neither total changes — the income statement still shows $2.4 million of SG&A. What changes is how quickly a lender or acquirer can answer the questions that actually drive a valuation or lending decision: how much of this cost scales with headcount, how much is fixed overhead, and how much is non-cash. A company that can produce this breakdown in an afternoon looks fundamentally more credible than one that needs three weeks and a temp bookkeeper to reconstruct it.
Common Mistakes to Avoid
- Waiting for a diligence request to start tagging. Reclassifying two or three years of historical transactions after a buyer asks for it is slow, error-prone, and makes your books look less trustworthy, not more.
- Splitting compensation only at the company level, not by function. A single "Payroll" account that mixes production staff, sales, and administration defeats the purpose — disaggregation only works if the underlying categorization happens at the transaction or employee level.
- Treating depreciation as a single lump adjustment on the cash flow statement instead of tracking it by asset class. You'll eventually need it broken out by the expense caption it belongs to, not just as one add-back.
- Changing categorization methodology year to year without documentation. Inconsistent treatment of borderline expenses (is a software subscription "technology" or "G&A"?) raises more diligence questions than it answers.
- Assuming this only matters at exit. Lenders renewing or extending credit facilities are asking these questions on an ongoing basis, not just at a liquidity event.
What to Do Before the Deadline Reaches You
You don't need to formally adopt ASU 2024-03 to benefit from preparing for it. A few practical steps:
- Audit your current chart of accounts against the five DISE categories — inventory purchases, employee compensation, depreciation, amortization, and depletion (if applicable) — and note where they're currently commingled.
- Model out one full disaggregated expense footnote using last year's numbers, even informally. If you can't produce it without hours of manual reclassification, that's your gap analysis.
- Talk to your CPA or fractional CFO about a phased chart-of-accounts update, ideally timed to a fiscal year boundary so you're not restating mid-year comparatives.
- If a transaction, loan, or IPO is realistically 18-36 months out, treat this as part of that readiness timeline, not a separate accounting project.
Keep Your Financial Records Ready for Scrutiny
Whether or not ASU 2024-03 ever technically applies to your business, the underlying shift it represents — expense data that's granular, consistently categorized, and easy to trace back to source transactions — is where financial reporting is heading for any company that wants outside capital or a buyer. Beancount.io gives you plain-text, version-controlled accounting that makes it easy to restructure your chart of accounts, tag transactions precisely, and produce an auditable history of every change — no black box, no vendor lock-in. Get started for free and build books that are ready for whatever scrutiny comes next.