No more extraordinary items: FASB simplifies GAAP

[Repon]

No more extraordinary items: FASB simplifies GAAP
By Ken Tysiac
January 14, 2015(Published in Journal of Accountancy)

A FASB (Financial Accounting Standards Board) initiative designed to simplify GAAP (Generally Accepted Accounting Principles) has yielded its first standard: The board is eliminating 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 frequent. 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.

[Nujhat Anjum]

Good one