The FASB recently decided to eliminate the concept of extraordinary items. More

Question

The FASB recently decided to eliminate the concept of extraordinary items. More details about this decision can be found here: http://www.fasb.org/jsp/FASB/FASBContent_C/ProjectUpdatePage&cid=1176164211686 In particular, download and review the July 15, 2014 proposed Accounting Standards Update (ASU) and review the decisions reached at the October 29, 2014 board meeting. 1. When is this updated rule effective? 2. Will this change be applied prospectively or retrospectively? What is meant by these terms in an accounting context? 3. Under the old rules, what criteria were required to be met before an event could receive extraordinary treatment? 4. Why did the FASB decide to make this rule change? 5. Which subtopics of the ASC will be affected by this change?

Explanation / Answer

1. This updated rule is effective for the interim and annual periods in fiscal years beginning after December 15, 2015.

2. As per ASU (Accounting Standards Update) this rule applicable prospective or retrospective application based on the scenario.

3. Under the old rules, companies are bound to segregate certain events or transactions into unusual or to infrequent manner. If any item met the criteria of one or both of the conditions mentioned above, it was deviated from ordinary operations and reported as net of tax after income from continuing operations.

4. Many companies complimented to FASB that separate treatment for extraordinary items are both time consuming and misguiding the users of financial statements. FASB also recognized that the change of treatment of extraordinary items also follows the guidance with International Accounting Standard 1 (IAS 1).

5. In order to provide consistency in accounting, the codification clearly differentiates subtopics from other main topics. Subtopics are distinguished by scope or type like operating leases or like capital leases. Subtopics like general receivables and general inventory will be effected by this change.

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