The Elimination of Extraordinary Items (#191)
/In this podcast episode, we discuss the new accounting standard that eliminates the separate reporting of extraordinary items in the income statement. Key points made are noted below.
The Prior Treatment of Extraordinary Items
The rule used to be that you had to separately identify an extraordinary item in the income statement, net of tax, after income from continuing operations. It was intended to strip away all extraneous items from the core operating results of a business, to see how well it was really doing. An extraordinary item was something both unusual and infrequent, and typically involved a large loss.
The Elimination of Reporting for Extraordinary Items
By eliminating this reporting requirement, we are showing a more comprehensive picture of outlier transactions that still impact a business. Realistically, we should be putting more items into the body of the income statement, to show the full range of financial results. This means adding back the results of discontinued operations, and putting fewer items in other comprehensive income.
This change in the accounting standards does not apply to IFRS, since the IASB never adopted the separate reporting of extraordinary items in the first place.