What Broker-Dealer and RIA CFOs Are Getting Wrong About the FASB's New Expense Rule

If you run finance for a broker-dealer or a registered investment adviser, or serve as a broker-dealer's FinOp, the first question you should be asking about DISE is whether your organization is actually in scope. For many firms, the answer may be yes—even without public shareholders or public debt.

A new FASB standard is heading toward your 2027 annual filing (for calendar-year firms), and it reaches further into your organization than the name suggests. The Financial Accounting Standards Board issued Accounting Standards Update 2024-03, Disaggregation of Income Statement Expenses (DISE), in November 2024. Codified as ASC 220-40, the standard is commonly referred to as DISE. The disclosure lives entirely in the footnotes. Your income statement itself will not look any different. What is different is the layer of detail beneath it that investors and other financial statement readers can now see.

This is the first article in a three-part series on DISE readiness for broker-dealers and investment advisers.

Key Takeaways

• DISE reaches every public business entity, and the definition specifically includes non-issuers required to file or furnish financial statements with the SEC.
• A broker-dealer that files audited financial statements under Rule 17a-5 is generally in scope, with no size threshold and no exception for smaller reporting companies.
• Advisers get pulled into DISE through specific paths worth checking against your own structure: dual registration with a broker-dealer within the same legal entity, separate financial information required to be included in an SEC filing, or other SEC financial statement filings.
• Registered funds generally have their own scope analysis, separate from the adviser that manages them, and a typical private fund is generally outside DISE.
• The standard is effective for annual periods beginning after December 15, 2026, with calendar-year entities first applying it in 2027 annual financial statements.

Broker-Dealers Are Generally in Scope

DISE is not limited to organizations with public debt or equity outstanding. Under ASC 220-40, the standard reaches every public business entity, and the definition specifically includes non-issuers required to file or furnish financial statements with the SEC. Broker-dealers are named as an example. The Rule 17a-5 requirement to file annual audited financial statements with the SEC is generally enough, on its own, to make your organization a public business entity for this purpose, subject only to the narrow exceptions in the rule.

That is worth pausing on, because it tends to catch people off guard. You do not need a public parent, public debt, or a single outside shareholder. If your broker-dealer files audited financials with the SEC, DISE applies to you.

Investment Advisers Require a Separate Scope Analysis

Investment Advisers registered under the Investment Advisers Act of 1940 often assume the rule applies to them the same way it reaches broker-dealers, since they also register with the SEC. However, the trigger is not the same. What makes a broker-dealer a public business entity is the requirement to file audited financial statements under Rule 17a-5. An adviser's core SEC filing is Form ADV, which is a registration and disclosure document, not a set of GAAP financial statements. Filing Form ADV, on its own, does not make an adviser a public business entity, and a standalone adviser that files nothing else is generally outside DISE, the same as any other private company.

The places advisers do get pulled in are specific, and each is worth checking against your own structure:

Dual Registration

If the same legal entity is registered both as an investment adviser and as a broker-dealer, the Rule 17a-5 audited financial statements filed by that entity bring the entire legal entity into DISE. In that case, the adviser should treat itself as in scope. By contrast, an adviser that is separately incorporated or otherwise organized in a separate legal entity does not become in scope merely because it is affiliated with a broker-dealer. The key question is which legal entity is required to file the audited financial statements with the SEC.

Part of a Public Group

This is only when the information is filed. Being consolidated into a public parent does not, by itself, make the adviser a public business entity for its own standalone financial statements. The adviser is pulled into DISE only when its separate financial statements, or separate financial information, are required to be included in an SEC filing, or are in fact included in one. One example is the financial statements of a significant acquiree filed under Regulation S-X Rule 3-05. Another path is separate financial statements of an equity-method investee filed under Regulation S-X Rule 3-09, which can reach an adviser held as a material minority investment by a public company. In that situation, DISE applies to the adviser’s financial statements or financial information included in the SEC filing. Because holding-company structures are common, the practical question is not simply whether there is a public parent, but whether the adviser’s own separate financial information is actually filed or furnished with the SEC.

Other SEC Financial-Statement Filings

 The same conclusion applies if the adviser itself files or furnishes audited financial statements with the SEC for another reason. In that case, the adviser’s filed financial statements are public-business-entity financial statements for DISE purposes.

Additional Scope Considerations for Advisers

• Do not confuse the adviser with the funds it manages. Registered funds and BDCs generally have their own SEC financial-statement filing obligations and therefore have their own PBE analysis. A typical private fund, by contrast, generally is not a public business entity unless it independently meets the PBE definition. The audited financial statements a private fund may deliver to investors under the Advisers Act custody rule are the fund’s financial statements, and delivering them privately to investors does not by itself make the fund, or the adviser, a public business entity. Either way, that is the fund’s analysis, not the adviser’s
• Having custody or discretionary authority does not by itself turn the adviser into a public business entity. Custody or discretionary authority can make Form ADV Part 2A Item 18. B relevant, but only if the adviser has a financial condition reasonably likely to impair its ability to meet contractual commitments to clients. That disclosure is not a set of audited financial statements. The one Form ADV item that expressly calls for an audited balance sheet is the advance-fee provision in Item 18. A, which applies when the adviser requires substantial prepayment of advisory fees. If that applies, raise it with your auditor, because an audited balance sheet included with a publicly available SEC filing is closer to the PBE line than an ordinary Form ADV disclosure.

The Effective Date and Transition Roadmap

Once the scope is determined, the next question is timing. DISE is effective for annual periods beginning after December 15, 2026. For calendar-year entities, that means the first annual DISE disclosures will appear in the 2027 audited financial statements. For entities with a different year-end, the same December 15, 2026 trigger applies based on the start of the entity’s own fiscal year. For example, a broker-dealer with a January 31 year-end would first apply DISE in its annual financial statements for the year ending January 31, 2028.

Interim-period disclosures follow one year later, for interim periods within fiscal years beginning after December 15, 2027, as clarified by ASU 2025-01. Early adoption is permitted, including in interim periods within an annual period for which the standard has been early adopted. One point that is easy to overlook is that, once the interim requirement takes effect, the full tabular disaggregation must be repeated in every interim period, not just annually, so the recurring quarterly work is essentially the same as the annual footnote.

Transition also requires a decision. An entity may apply DISE prospectively or retrospectively. Under a prospective approach, DISE disclosures are not required for comparative periods presented before initial adoption; the disclosures are added for periods after adoption as those periods are presented. Under a retrospective approach, an entity may present DISE disclosures for any or all prior periods presented. Still, it must apply the disclosure requirements in full for each prior period it chooses to include.

That transition choice should be made deliberately. Prospective adoption avoids restating comparative prior periods, so only the adoption-year table is required at first; retrospective adoption adds prior-period tables and, with them, more comparable trend information where the underlying data is available. Either way, the data work should start before the first adoption year closes. The standard permits reasonable estimates and other methods that produce a reasonable approximation of the required amounts (ASC 220-40-55-2), so transaction-level tagging is not the only acceptable approach — though an estimate affects how an amount is measured, not whether it must be disclosed. The closer the analysis is performed to the year in question, the easier the disclosure will be to support.

Determining Whether DISE Applies

For many broker-dealers, the scope analysis is relatively straightforward. Investment advisers, however, often require a closer look at legal structure, filing obligations, and affiliated entities before reaching a conclusion. Establishing whether DISE applies is the first step, because every disclosure, data-gathering, and implementation decision that follows depends on the answer.

In part two, we examine what organizations in scope are actually required to disclose and why employee compensation becomes a focal point of analysis for many broker-dealers and advisers.

Frequently Asked Questions

Does DISE change how our income statement looks?

No. It is all in the footnotes. No new line items, no new subtotals, and nothing moves on the face of the statement.

We are a small broker-dealer with no public securities. Are we really in scope?

Yes. If you file audited financials with the SEC under Rule 17a-5, you are in. There is no size threshold or break for smaller reporting companies or emerging growth companies.

We are an SEC-registered adviser. Are we automatically in scope?

Not automatically. Registering and filing Form ADV is not the same as filing audited financial statements with the SEC, so a standalone adviser is often outside DISE. What pulls you in is being a broker-dealer, or sitting in the same entity as one, or having your financials included in a public company's SEC filing. Check which, if either, describes you.

We advise private funds. Does that put us in scope?

Not on its own. The funds have their own analysis: a registered fund is generally in scope; a typical private fund is generally not, but that is the fund's question, not the adviser's. The audit that comes with custody or a private-fund arrangement is not the adviser's own financial statements.