Extraordinary Item Definition - Investopedia

An extraordinary item was a gain or loss from unusual events previously identified on a company's income statement. Extraordinary items were removed from ... CorporateFinance&Accounting Accounting WhatIsanExtraordinaryItem? Extraordinaryitemsconsistedofgainsorlossesfromeventsthatwereunusualandinfrequentinnaturethatwereseparatelyclassified,presentedanddisclosedoncompanies'financialstatements.Extraordinaryitemswereusuallyexplainedfurtherinthenotestothefinancialstatements.Companiesshowedanextraordinaryitemseparatelyfromtheiroperatingearningsbecauseitwastypicallyaone-timegainorlossandwasnotexpectedtorecurinthefuture. InJanuary2015,theFinancialAccountingStandardsBoard(FASB),whichissuestheaccountingstandardsthatU.S.companiesmustcomplywith,eliminatedtheconceptofextraordinaryitems.However,companiesmuststillreportnonrecurringitemssuchasincomereceivedfromthesaleofland. KeyTakeaways Extraordinaryitemsweregainsorlossesfrominfrequentandunusualeventsthatwereseparatelyclassifiedoncompanies'financialstatements.InJanuary2015,theFinancialAccountingStandardsBoard(FASB)eliminatedtheconceptofextraordinaryitems.FASBdiscontinuedtheaccountingtreatmentforextraordinaryitemstoreducethecostandcomplexityofpreparingfinancialstatements. UnderstandingExtraordinaryItem TheaccountingstandardsestablishedandupdatedbyFASBarecalledthegenerallyaccepted accountingprinciples (GAAP).FASBdiscontinuedtheaccountingtreatmentforextraordinaryitemsandremovedthereportingrequirementfromU.S.GAAPinordertoreducethecostandcomplexityofpreparingfinancialstatements. Before2015,companiesputalotofeffortintodeterminingifaparticulareventshouldbedeemedextraordinary.Gainsandlosses netoftaxes fromextraordinaryitemshadtobeshownseparatelyontheincomestatementafterincomefromcontinuingoperations. TheupdatebyFASBtoremoveextraordinaryitemsonlyeliminatedtheneedforcompaniesandtheirauditorstoidentifywhetheraneventwassorareastoqualifyasanextraordinaryitemstartinginfiscalyear2015.Companiesmuststilldiscloseinfrequentandunusualeventsbutnowwithoutdesignatingthemasextraordinary.Also,companiesarenolongerrequiredtoevaluatetheincometaxeffectofextraordinaryitemsandpresenttheeffectonearningspershare(EPS),whichisacompany'sprofitasaproportionofitsoutstandingequityshares. Thisaccountingupdateleftreportinganddisclosurerequirementsforunusualandinfrequenteventsortransactionsintact.Whilecompaniesnolongermustdescribeeventsandtheireffectsasextraordinary,theystillhavetodiscloseinfrequentandunusualeventsontheincomestatementandtheireffectbeforeincometaxes.Also,GAAPallowscompaniestogivetheseeventsmorespecificnames,suchas"EffectsFromFireatProductionFacility." TheInternationalFinancialReportingStandards(IFRS)donotincludeextraordinaryitemsintheiraccountingstandards. RequirementsforanExtraordinaryItem Aneventortransactionwasdeemedextraordinaryifitwasbothunusualandinfrequent.Anunusualeventmustbehighlyabnormalandunrelatedtothetypicaloperatingactivitiesofacompany,anditshouldbereasonablyexpectednottorecurgoingforward.Itwascommonforsomebusinessestonothavethislineitempresentedforyears.  Besidessegregatingtheeffectofextraordinaryitemsontheincomestatement,companieswererequiredtoestimateincometaxesfromtheseitemsanddisclosetheirearnings-per-share(EPS)impact.Examplesofextraordinaryitemsarelossesfromvariouscatastrophicevents,suchasearthquakes,tsunamis,andwildfires.Whiledesignatingandestimatingtheeffectfromcertainextraordinaryevents(e.g.,fires)waseasy,othereventswithanindirecteffectoncompanies'operationsweremuchmoredifficulttoassess. ArticleSources Investopediarequireswriterstouseprimarysourcestosupporttheirwork.Theseincludewhitepapers,governmentdata,originalreporting,andinterviewswithindustryexperts.Wealsoreferenceoriginalresearchfromotherreputablepublisherswhereappropriate.Youcanlearnmoreaboutthestandardswefollowinproducingaccurate,unbiasedcontentinour editorialpolicy. FinancialAccountingStandardsBoard."IncomeStatement—ExtraordinaryandUnusualItems(Subtopic225-20),"pages1-2.AccessedAug.21,2020. CompareAccounts AdvertiserDisclosure × TheoffersthatappearinthistablearefrompartnershipsfromwhichInvestopediareceivescompensation.Thiscompensationmayimpacthowandwherelistingsappear.Investopediadoesnotincludealloffersavailableinthemarketplace. Provider Name Description RelatedTerms NonrecurringGainorLossDefinition Anonrecurringgainorlossisaninfrequentprofitorexpensethatdoesn'tarisefromacompany’snormaloperations. more CorporateCharge-Off Acorporatecharge-offisanitemonthecompany'sincomestatementthatisnotcollectibleandissubsequentlywrittenoffthebalancesheet. more All-InclusiveIncomeConcept Theall-inclusiveincomeconceptreportsallgainsandlosses,includingthosenotrelatingtoeverydaybusinessoperations,ontheincomestatement. more EarningsBeforeInterest,Taxes,Depreciation,Amortization,SpecialLosses(EBITDAL) Earningsbeforeinterest,taxation,depreciation,amortization,andspeciallossesisameasureofprofitabilitythatisroughlyanalogoustonetincome. more UnusualItem Anunusualitemisanonrecurringorone-timegainorlossthatisnotconsideredpartofnormalbusinessoperations. more ValueInvesting:HowtoInvestLikeWarrenBuffett ValueinvestorslikeWarrenBuffettselectundervaluedstockstradingatlessthantheirintrinsicbookvaluethathavelong-termpotential. more PartnerLinks RelatedArticles CorporateFinance&Accounting HowAreUnusualorInfrequentItemsTreatedforIFRSandU.S.GAAP? 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