
Extraordinary Item
Extraordinary items consisted of gains or losses from events that were unusual and infrequent in nature that were separately classified, presented and disclosed on companies' financial statements. Also, companies are no longer required to evaluate the income tax effect of extraordinary items and present the effect on earnings per share (EPS), which is a company's profit as a proportion of its outstanding equity shares. This accounting update left reporting and disclosure requirements for unusual and infrequent events or transactions intact. Besides segregating the effect of extraordinary items on the income statement, companies were required to estimate income taxes from these items and disclose their earnings-per-share (EPS) impact. While companies no longer must describe events and their effects as extraordinary, they still have to disclose infrequent and unusual events on the income statement and their effect before income taxes. The update by FASB to remove extraordinary items only eliminated the need for companies and their auditors to identify whether an event was so rare as to qualify as an extraordinary item starting in fiscal year 2015.

What Is an Extraordinary Item?
Extraordinary items consisted of gains or losses from events that were unusual and infrequent in nature that were separately classified, presented and disclosed on companies' financial statements. Extraordinary items were usually explained further in the notes to the financial statements. Companies showed an extraordinary item separately from their operating earnings because it was typically a one-time gain or loss and was not expected to recur in the future.
In January 2015, the Financial Accounting Standards Board (FASB), which issues the accounting standards that U.S. companies must comply with, eliminated the concept of extraordinary items. However, companies must still report nonrecurring items such as income received from the sale of land.



Understanding Extraordinary Item
The accounting standards established and updated by FASB are called the generally accepted accounting principles (GAAP). FASB discontinued the accounting treatment for extraordinary items and removed the reporting requirement from U.S. GAAP in order to reduce the cost and complexity of preparing financial statements.
Before 2015, companies put a lot of effort into determining if a particular event should be deemed extraordinary. Gains and losses net of taxes from extraordinary items had to be shown separately on the income statement after income from continuing operations.
The update by FASB to remove extraordinary items only eliminated the need for companies and their auditors to identify whether an event was so rare as to qualify as an extraordinary item starting in fiscal year 2015. Companies must still disclose infrequent and unusual events but now without designating them as extraordinary. Also, companies are no longer required to evaluate the income tax effect of extraordinary items and present the effect on earnings per share (EPS), which is a company's profit as a proportion of its outstanding equity shares.
This accounting update left reporting and disclosure requirements for unusual and infrequent events or transactions intact. While companies no longer must describe events and their effects as extraordinary, they still have to disclose infrequent and unusual events on the income statement and their effect before income taxes. Also, GAAP allows companies to give these events more specific names, such as "Effects From Fire at Production Facility." The International Financial Reporting Standards (IFRS) do not include extraordinary items in their accounting standards.
Requirements for an Extraordinary Item
An event or transaction was deemed extraordinary if it was both unusual and infrequent. An unusual event must be highly abnormal and unrelated to the typical operating activities of a company, and it should be reasonably expected not to recur going forward. It was common for some businesses to not have this line item presented for years.
Besides segregating the effect of extraordinary items on the income statement, companies were required to estimate income taxes from these items and disclose their earnings-per-share (EPS) impact. Examples of extraordinary items are losses from various catastrophic events, such as earthquakes, tsunamis, and wildfires. While designating and estimating the effect from certain extraordinary events (e.g., fires) was easy, other events with an indirect effect on companies' operations were much more difficult to assess.
Related terms:
All-Inclusive Income Concept
The all-inclusive income concept reports all gains and losses, including those not relating to everyday business operations, on the income statement. read more
Charge-Off
A charge-off is an item on the company's income statement that is not collectible and is subsequently written off the balance sheet. read more
Currency Translation
Currency translation is the process of converting the financial results of a parent company's foreign subsidiaries into its primary currency. read more
Earnings Before Interest, Taxes, Depreciation, Amortization, Special Losses (EBITDAL)
Earnings before interest, taxation, depreciation, amortization, and special losses is a measure of profitability that is roughly analogous to net income. read more
Earnings Per Share (EPS)
Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. read more
Equity : Formula, Calculation, & Examples
Equity typically refers to shareholders' equity, which represents the residual value to shareholders after debts and liabilities have been settled. read more
Financial Accounting Standards Board (FASB)
The Financial Accounting Standards Board (FASB) is an independent organization that sets accounting standards for companies and nonprofits in the United States. read more
Financial Statements , Types, & Examples
Financial statements are written records that convey the business activities and the financial performance of a company. Financial statements include the balance sheet, income statement, and cash flow statement. read more
Generally Accepted Accounting Principles (GAAP)
GAAP is a common set of generally accepted accounting principles, standards, and procedures that public companies in the U.S. must follow when they compile their financial statements. read more
International Financial Reporting Standards (IFRS)
International Financial Reporting Standards (IFRS) are a set of accounting rules used by companies in 120 nations to make their public records transparent and comparable. read more