Knowledge Center

  • RSS Feed
  • Contact
  • Print

KNOWLEDGE CENTER >

ASU 2015-01 Eliminating Extraordinary Items

January 26, 2015

On January 9, 2015, the Financial Accounting Standards Board (FASB) unanimously voted to approve Accounting Standards Update (ASU) 2015-01, which eliminates the concept of extraordinary items in an entity’s income statement. The changes in ASU 2015-01 are effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. 

Under existing U.S. GAAP, a company would separately classify, present and disclose an extraordinary item if it met two requirements. First, an event would have to be unusual in nature, meaning that the event was highly abnormal and clearly unrelated to the ordinary activities of the entity. Second, the event or transaction should be so infrequent that it would not be reasonably expected to recur in the foreseeable future.

In recent years, it has been extremely rare for an event to be considered an extraordinary item for financial reporting purposes. After the September 11th terrorist attacks, the FASB Emerging Issues Task Force Chairman wrote that “Because of the far-reaching effects of the September 11 events, coupled with a weakening economy that predated those events, it would be difficult to capture the resulting economic effects in companies’ financial statements. As one example, the events impacted airlines in multiple ways. Air carriers were unable to fly for two days and suffered the effects of rerouting and initiated layoffs in anticipation of lower passenger demand. No single line item can capture all of those effects.” In 2005 after Hurricane Katrina struck the New Orleans and Gulf Coast area, a FASB spokesman wrote to the Wall Street Journal that “As tragic as hurricanes and other natural disasters are for everyone affected, unfortunately every year many businesses across the country are affected by these types of events and thus they do not represent an unusual and infrequent occurrence to businesses or to insurers.”

The FASB determined that simplifying accounting standards by eliminating the extraordinary event would (1) reduce the cost and complexity of applying U.S. GAAP while maintaining or improving the usefulness of information in the financial statements and (2) eliminate an inconsistency between U.S. GAAP and International Financial Reporting Standards. Because an event or transaction rarely meets the criteria to be classified as an extraordinary item, this ASU is not anticipated to have a significant effect on financial reporting.

For more information or additional questions, please contact Jennifer Hogencamp, jhogencamp@blumshapiro.com

 

Advisors | Auditors | Consultants | CPAs - Blum Shapiro is one of the premier public accounting firms in the northeast and a Top 100 CPA Firm in the U.S. Our professionals serve businesses, individuals and organizations in Boston (MA), Hartford (CT), Cranston (RI), Shelton (CT) ,Quincy (MA) and Newton (MA) with audit, tax and business consulting services. Our firm has developed practice areas in automotive, construction, education, government, healthcare, hospitality, manufacturing, nonprofit organizations and professional service firms. New Haven CT, Fairfield CT, Norwalk CT, Waterbury CT.