Determining whether an event or an item was an extraordinary item has been a confusing and often burdensome determination for accountants and entities alike. Over the years, an item could be argued for and against the consideration to be treated as an extraordinary item. For example, Hurricane Katrina caused terrible damage and one might consider such an event would be an extraordinary item. However, a hurricane in and of itself is not considered to be unusual or infrequent in nature as hurricanes are a likely event. Although the damage was by the hurricane was catastrophic, it was not deemed and did not meet the requirements to be considered extraordinary. An extraordinary item was previously considered to be an item that was unusual and infrequent in nature. The gain or loss on these items was to be shown segregated from the results of ordinary operations on the statement of activities, net of any tax. In addition, the extraordinary item was to be disclosed in the accompanying notes to the financial statements describing the origin, nature and the amount.
Entities will no longer have to go through the burdensome process of assessing whether a one-time event is considered an extraordinary item. The Accounting Standards Update (ASU 2015-01, Income Statement –Extraordinary and Unusual Items: Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items) eliminates the extraordinary classification from U.S. Generally Accepted Accounting Principles (GAAP). In this day and age it is rare for entities to report an extraordinary item; however, when an event arises, the extraordinary determination process merited evaluation. The elimination of this separate reporting requirement will save time for both accountants and entities alike. If a material transaction occurs that an entity considers to be unusual or infrequent or both, the entity should instead report this item as a separate in income from operations or disclose in the note to the financial statements.
The ASU is effective for fiscal years, and interim periods beginning after December 15, 2015. Early adoption is permitted if the guidance is applied from the beginning of the year of adoption or can be applied prospectively or retrospectively to all prior period presented.
If an entity applies the ASU prospectively, a disclosure should be made of the nature and amount of an item included in income from continuing operations after adoption that adjusts an extraordinary item that was previously classified and presented before the adoption date.