CandleFocus

Extraordinary Item

Candlefocus Editor
The concept of extraordinary items has been around for decades, with the goal of alerting investors to events that are isolated, yet significant. Prior to the FASB eliminating their use, extraordinary items allowed companies to separately report gains or losses from events that were infrequent and unusual. These events could have come from operations, including gains or losses on the sale of long-term assets or the write off of an entire segment of the business; or they could have been gains or losses from restructuring, discontinuation of operations, or other non-operating income and expenses.

The FASB decided to eliminate the concept of extraordinary items to simplify the process of financial statement preparation and reduce the cost of preventing and preparing financial statements. Now, all gains and losses, regardless of how "atypical" they may be, should be reported in the same income statement according to the appropriate GAAP standards.

In order for a particular event to be considered extraordinary, it must have met the following criteria:

- It must be both unusual in nature and infrequent in occurrence. - It must exceed the normal expected results of the company's primary operations. - It must not be under the company's control.

The concept of extraordinary items has been around for many years and its elimination was a long-term goal of the FASB. The elimination of this accounting concept was designed to increase the reliability and accuracy of financial statements and to reduce the cost of their preparation. Although the elimination of extraordinary items has simplified the process of preparing financial statements, companies must still make sure to record all gains and losses in the appropriate categories so that investors get a full and accurate picture of their financial performance.

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