Income Statement Expense Disaggregation

The Financial Accounting Standards Board (FASB) is currently considering changes to reporting standards that would require disaggregation of significant expenses, like cost of goods sold (COGS) and selling, general, and administrative (SG&A) expenses. Proponents argue this disaggregation will improve decision usefulness, while opponents suggest the information would be costly and provide little value. We provide large-sample evidence on the current state of COGS and SG&A disaggregation and analyze potential capital market benefits. Our findings suggest that disaggregation is relatively common and increasing over time. Further, COGS, but not SG&A, disaggregation appears generally useful for investors and analysts, and these benefits accrue via improved processing of expense-related news. Overall, our evidence suggests that not all disaggregation is equal, which the FASB may wish to consider in future deliberations. We also identify novel, large-sample measures of expense disaggregation for U.S. firms, which can aid future research in evaluating implications of disaggregation.