Elimination of Extraordinary Items

By McClintock & Associates | December 20, 2016

By Stefanie Wuenscher, CPA

On January 9, 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2015-01, Income Statement – Extraordinary and Unusual Items (Subtopic 225-20) Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The FASB issued this update as part of its Simplification Initiative with the intent to reduce the complexity in accounting standards while maintaining usefulness for users of financial statements. It is effective for fiscal years, and interim periods within those fiscal years, starting after December 15, 2015. Early adoption is permitted.

Before the FASB released this update, extraordinary items were defined as events that were both unusual in nature and infrequent in occurrence. If an item was considered extraordinary, U.S. Generally Accepted Accounting Principles required it to be shown on the income statement segregated from continuing operations, net of tax. Rarely did a company meet both the criteria of unusual in nature and infrequent in occurrence, with neither the attacks on September 11 nor Hurricane Katrina qualifying as an extraordinary event for financial reporting purposes.

“The term extraordinary causes uncertainty because it is often unclear when an item should be considered both unusual and infrequent and what might be considered extraordinary in one industry may not be considered extraordinary to another,” according to the FASB as part of its background information and basis for conclusions for ASU No. 2015-01. “Additionally, the concept of extraordinary items has been interpreted narrowly in practice so entities rarely, if ever, reach a conclusion that the conditions for presentation have been met.” ASU No. 2015-01 is intended to save time, reduce costs, and alleviate any uncertainty on the assessment of an item as extraordinary now that the concept of extraordinary items has been eliminated. The FASB clarified that the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. The FASB also clarified that items that are both unusual in nature and infrequently occurring should be presented within income from continuing operations or disclosed in the notes to the financial statements because those items satisfy the conditions for an item that is unusual in nature or infrequently occurring.

If you have any questions on this update, please feel free to contact us.

Volume 2, Issue 2
Spring 2015

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