Events and transactions that are considered extraordinary items are constantly changing with everyday occurrences and happenings.Įxtraordinary items were originally defined in Accounting Principles Board Opinion No. Extraordinary items are not new to financial statements in fact they have been around since the early to mid-1900. Transactions and events in accounting are considered to be extraordinary items when they are of material effect that are not expected to repeat frequently and would not be seen as repetitive factors in any assessment of the ordinary operating procedures of the business.
Three specific examples of extraordinary items by the ABP are: a crop loss from a hailstorm when severe damage from hailstorms is rare for that location a one-time sale of land initially purchased as a plant site, but later held for speculation and a major production facility. For example, while most write-downs/disposals of assets do not qualify, they may be considered extraordinary if they are incurred due to a major casualty (earthquake), expropriation, or prohibition under a newly enacted law. The APB Opinion 30 provided directions to determine whether events met the criteria of an extraordinary item, and whether they should be reported as extraordinary gains or losses, while taking into account the environment in which the company operated.
They must be both unusual plus infrequent, and when it is required that an amount be reported as an extraordinary gain or loss, regardless of the ASC 225-20 criteria. The two types of extraordinary items are events and transactions that meet the ASC 225-20 criteria. The function of extraordinary items, reported on the income statement, is to separate the impact of unusual and infrequent events and transactions from the income from continuing operations. While FASB’s pronouncement is consistent with their goal of converging with IASB’s standards, it should also take into account the impact of eliminating this classification on financial reporting and as well as on the SEC filers. Even though, ASC 225-20 has not been superseded to date, FASB confirmed their decision on March 10, 2010, to disallow the reporting of extraordinary items. Presently, Accounting Standards Codification (ASC) Subtopic 225-20, Income Statement-Extraordinary and Unusual Items, requires companies to present the effects of extraordinary, unusual, and infrequently occurring events and transactions as a functional category on the income statement.