Extraordinary items in accounting used to refer to unusual and infrequent events that significantly affected a company’s financial statements. Today, under U.S. GAAP and IFRS, “extraordinary items” as a separate category are no longer permitted, so companies present such effects within income from continuing operations with appropriate description and disaggregation when material.
Understanding how to account for these unusual or infrequent effects is crucial for accurate financial reporting and analysis.
Criteria for Classification
Under U.S. GAAP, the “extraordinary items” classification was eliminated by Accounting Standards Update 2015-01, effective for fiscal years beginning after December 15, 2015. Companies no longer classify items as extraordinary. 1Journal of Accountancy. No More Extraordinary Items: FASB Simplifies GAAP
Under IFRS, IAS 1 explicitly prohibits presenting any items of income or expense as extraordinary in the statement(s) of profit or loss and other comprehensive income or in the notes. 2IFRS Foundation. IAS 1 Presentation of Financial Statements
In practice, preparers focus on whether items are unusual or infrequent and whether they are material enough to merit separate presentation or disclosure. Context still matters: industry characteristics and geography can influence whether something is considered unusual or infrequent for that entity.
Financial Statement Presentation
Clarity and transparency remain paramount. Since “extraordinary” treatment is not allowed, companies present unusual or infrequent gains and losses within income from continuing operations and use distinct line items or disaggregation when material so users can evaluate underlying performance without distortion.
A separate line item can be used when the nature or magnitude of the item is significant, with concise labeling that reflects the event (for example, “Loss on wildfire event” or “Gain on insurance proceeds”). Notes should describe what happened, quantify the amounts recognized, and explain any key judgments or estimates. This approach preserves comparability across periods and entities while keeping the effects visible to readers.
Impact on Earnings Per Share
EPS will reflect the effects of unusual or infrequent items because they are included in continuing operations. A large gain or loss can temporarily inflate or depress EPS, so many companies supplement GAAP EPS with clearly labeled non-GAAP measures that exclude specified items, along with reconciliations and explanations. Transparent communication helps investors distinguish core performance from one-off events.
Tax Implications
Tax outcomes depend on the nature of the item and the jurisdiction. Some losses may be deductible, while certain gains are taxable. Timing and recognition also influence the effective tax rate in the period. Given the variability of tax law, companies typically evaluate each event with tax counsel to determine deductibility, credits, carrybacks/carryforwards, and required disclosures.
Disclosure Requirements
Disclosure aims to give users a complete and understandable picture of the event’s financial impact. Companies separately present or disclose material items, describe the nature of the event, quantify the effects, and outline key assumptions or estimates. Clear, entity-specific notes help users assess the significance and any expected continuing effects.