FASB Eliminates Concept of Extraordinary Items from U.S. GAAP

Summary: 

The FASB recently published an ASU to eliminate the concept of extraordinary items from U.S. GAAP.  However, the presentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expanded to include items that are both unusual in nature and infrequently occurring. The new standard takes effect in 2016 and is available here.

Main Provisions:

ASU 2015-01  eliminates the requirement in Subtopic 225-20 to consider whether an underlying event or transaction is extraordinary,  and if so, to separately present the item in the income statement net of tax, after income from continuing operations.  The FASB concluded this change will save time and reduce costs for practitioners.

Items that are either unusual in nature or infrequently occurring will continue to be reported as a separate component of income from continuing operations.  Alternatively, these amounts may still be disclosed in the notes to the financial statements.  The same requirement has been expanded to include items that are both unusual and infrequent, i.e., they should be separately presented as a component of income from continuing operations or disclosed in the footnotes.

Effective Date and Transition:

For all entities (public and non-public), the ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption.

The guidance may be applied either prospectively or retrospectively.  If applied prospectively, the ASU requires disclosure of the nature and the amount of an item included in income from continuing operations after adoption that adjusts an extraordinary item previously classified and presented before the date of adoption, if applicable. If applied retrospectively, the ASU requires the disclosures in paragraphs 250-10-50-1 through 50-2 on applying a change in accounting principle.

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This article originally appeared in BDO USA, LLP’s “BDO Flash Report” newsletter (January 2015). Copyright © 2015 BDO USA, LLP. All rights reserved. www.bdo.com