Issues & Trends | October 2017

SEC focuses on income statement presentation and measures excluding certain costs

SEC staff objects to certain gross margin presentations and expense classification in the income statement. The SEC staff is commenting on and requiring financial statement revisions for the classification of expenses, allocation of indirect costs, and presentation of gross margin.


S-X Rule 5-03.2

SAB Topic 11.B

SAB Topic 14.F

  • SEC Registrants
  • All industries

Relevant dates

  • Effective immediately

Key impacts

KPMG has seen an increase in SEC comments asking how companies are complying with S-X Rule 5-03.2, SAB Topic 11.B and SAB Topic 14.F in their income statements:

  • S-X Rule 5-03 requires companies to state separately net sales and gross revenues, and applicable costs and expenses related to tangible products sold; public utility operating revenues; rental income; revenues from services; and other revenues
  • When a company presents in its income statement a subtotal for gross margin or gross profit, cost of sales must include all costs applicable to salesSAB Topic 11.B prohibits companies from presenting a line item for cost of sales in the income statement that omits applicable depreciation, depletion and amortization
  • SAB Topic 14.F requires companies to allocate stock-based compensation to the same line item as the employee’s cash compensation paid

Report contents

  • SEC requires financial statement revisions
  • Required financial statement line items
  • Depreciation, depletion and amortization
  • Stock-based compensation
  • Example gross margin presentations
  • Non-GAAP financial measures

Related content



Subscribe to our newsletter

Receive timely updates on accounting and financial reporting topics from KPMG.

Receive timely updates on accounting and financial reporting topics from KPMG.