Extraordinary items accounting questions
Disclosure of Extraordinary ItemsĪn extraordinary item used to be separately stated in the income statement if it met any of the following criteria: International Financial Reporting Standards ( IFRS) do not use the concept of an extraordinary item at all. The intent behind reporting extraordinary items within separate line items in the income statement was to clarify for the reader which items were totally unrelated to the operational and financial results of a business. This level of specificity was needed, because companies tried to classify as many losses as possible as extraordinary items, so that they could be pushed down to the bottom of the income statement for reporting purposes. Conversely, an example of an item that did not qualify as extraordinary was weather-related crop damage in a region where such crop damage was relatively frequent. GAAP specifically stated that write-offs, write-downs, gains, or losses on the following items were not to be treated as extraordinary items:Įxamples of items that could be classified as extraordinary were the destruction of facilities by an earthquake or the destruction of a vineyard by a hailstorm in a region where hailstorm damage was rare. Thus, a business might never report an extraordinary item. In nearly all cases, an event or transaction was considered to be part of the normal operating activities of a business, and so was reported as such. The reporting of an extraordinary item used to be an extremely rare event. The formal use of extraordinary items has been eliminated under Generally Accepted Accounting Principles ( GAAP), so the following discussion should be considered historical in nature. Since exam material could conceivably change from one exam testing window to another, turn to Surgent for the latest updates.An extraordinary item in accounting is an event or transaction that is considered abnormal, not related to ordinary company activities, and unlikely to recur in the foreseeable future.
It’s important to be aware of issuances that could impact how you answer the questions on the CPA Exam within that topic. 2015-15 will become testable on the CPA Examination six months after its issue date, in the October-November 2015 test window. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption.ĭue to early implementation, ASU No.
A reporting entity may apply the amendments prospectively or retrospectively. 2015-01 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015.
GAAP income statement presentation guidance with IAS 1, Presentation of Financial Statements, which prohibits the presentation and disclosure of extraordinary items. 2015-01 will result in a closer alignment of U.S. The Board does not foresee a loss of reporting information because the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and expanded to include items that are both unusual in nature and infrequently occurring. “Eliminating the concept of extraordinary items will save time and reduce costs for preparers because they will not have to assess whether a particular event or transaction event is extraordinary,” the FASB said in ASU No. Additionally, the board stated that the extraordinary item category wasn’t needed by investors or creditors. 2015-01, Income Statement-Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.Īccountants and other financial professionals had informed the FASB that the concept of extraordinary items was unclear and created confusion among corporate controllers and their auditors.
EXTRAORDINARY ITEMS ACCOUNTING QUESTIONS UPDATE
GAAP by the FASB on January 9, 2015, as a result of the adoption of Accounting Standards Update (ASU) No. The concept of extraordinary items was dropped from U.S. FASB Drops Extraordinary Items – When Will It Be Tested On The CPA Exam? By Surgent CPA Review Team January 10, 2015