Disaggregation takes flight: examining expense reporting in the airline industry

Purpose The purpose of this paper is to examine potential costs and benefits of requiring companies to present disaggregated expense figures. This study aims to inform both standard setters and financial statement preparers as they prepare for implementation of new authoritative guidance. Design/methodology/approach This paper uses unique financial data from the USA airline industry to investigate the effects of expense disaggregation. Quarterly data from 2000 to 2023 are used to test hypotheses formulated from financial statement users’ expectations of expense disaggregation. Findings Findings indicate that disaggregated expenses perform better at predicting future firm performance, consistent with standard setter’s predictions. Findings also show that the preparation and disclosure of disaggregated expenses leads to significantly higher non-audit service fees, highlighting potential costs of the new standard. The results provide important context for the ongoing debate and indicate that the net benefits of expense disaggregation likely outweigh the costs. Research limitations/implications This study includes implications for accounting standard setters as they consider the appropriate financial accounting treatment for expense disaggregation. The study can inform the standard setting process and impact future authoritative guidance. Originality/value This study fulfills an identified need to examine and understand appropriate accounting guidance for expense disaggregation. The effectiveness of current guidance has been questioned by many financial statement users and there is debate regarding the proper treatment moving forward. This paper contextualizes this debate and provides empirical evidence to inform this debate.