Business, Legal & Accounting Glossary
An “extraordinary item” is a non-recurring event that materially affects a company’s finances during a reporting period. Such items must be explained as a disclosure item within the Notes to the Financial Statements.
For an item to be considered “extraordinary”, the event or transaction is to be distinguished both by the unusual nature and infrequency of their occurrence. Extraordinary items as a separate line item in the entity’s income statement, after “discontinued operations’.
An unusual and unexpected one-time event that must be explained to shareholders in an annual or quarterly report, e.g., write down for a discontinued operation, employee fraud, a lawsuit, or other one-time events. Results are often presented with and without these items. The logic of excluding these items is that investors a better notion of future performance if one-time events are excluded.
In financial accounting, an extraordinary item is a non-recurring event that materially affects the financial results of the entity for the reporting period. GAAP requires that any extraordinary item be explained in the notes to the financial statements. An extraordinary item can have either a favourable or unfavourable impact on financial performance. Examples of an extraordinary item for a major company include an acquisition, a restructuring, and the settlement of a lawsuit. An extraordinary item may also reflect the provision of funds for the estimated impact of an anticipated non-recurring event. Comparison of a company’s most recent performance with past results must take into account the effect of each extraordinary item. The business media sometimes report not only a company’s earnings but also the earnings after excluding the impact of a newsworthy extraordinary item.
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This glossary post was last updated: 28th December, 2021 | 0 Views.