No more extraordinary items: FASB simplifies GAAP

By Ken Tysiac

A FASB initiative designed to simplify GAAP has yielded a standard that eliminates the concept of extraordinary items from GAAP.

FASB’s simplification initiative is designed to reduce cost and complexity while maintaining the usefulness of the information provided to users of financial statements.

Accounting Standards Update No. 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20), Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, describes the change. It is the board’s first accounting standards update of 2015.

Previous guidance required items to be classified as extraordinary when they were deemed both unusual and infrequent. Events or transactions meeting the criteria for classification as extraordinary were required to be segregated from the results of ordinary operations and shown separately in the income statement, net of tax, after income from continuing operations.

Disclosure of income taxes related to extraordinary items also was required. And entities were required to present or disclose earnings-per-share data applicable to extraordinary items.

It is extremely rare in current practice for a transaction or event to meet the requirements to be presented as an extraordinary item, but preparers nonetheless were spending time and incurring costs to assess whether events or transactions were extraordinary. The new standard eliminates the need for those assessments and eliminates the need for preparers, auditors, and regulators to evaluate whether a preparer treated an unusual and/or infrequent item appropriately.

The standard takes effect for fiscal years beginning after Dec. 15, 2015, and interim periods within those fiscal years. The amendments may be applied retrospectively to all prior periods presented in the financial statements, and early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption.

Ken Tysiac is a JofA editorial director.

SPONSORED REPORT

Revenue recognition: A complex effort

Implementing the new standard requires careful judgment. Learn how to make significant accounting judgments and document them and collaborate with peers for consistent application.

VIDEO

How to Excel pivot a general ledger

The general ledger is a vast historical data archive of your company's financial activities, including revenue, expenses, adjustments, and account balances. J. Carlton Collins, CPA, shows how to prepare data for, and mine data with, PivotTables.

QUIZ

News quiz: Taking an economic snapshot and looking to the future

Recent news included IRS actions that affect individuals and partnerships and a possibly influential move by a Big Four accounting firm.Take this short quiz to see how much you know about the news.