Company Selected Amazon Using your selected company as the basis for this discus

Question

Company Selected Amazon

Using your selected company as the basis for this discussion, review the financial statements for unusual or nonrecurring items. Was there a write-off of a segment of the business or a reduction in workforce that was charged as a nonrecurring item? Were there any other items that management claims are nonrecurring? What reasons might management have for making the decision on a large write-off charged in the current period?

https://www.sec.gov/Archives/edgar/data/1018724/000101872415000006/amzn-20141231x10k.htm

Explanation / Answer

Nonrecurring Items

A norecurring item refers to an entry that appears on a company's financial statements that is unlikely to happen again. It represents a one-time expense involving an unpredictable event and is not part of a firm’s normal, day-to-day operations. The terms nonrecurring item and Non recurring change can be used interchangeably and refer to a one-time charge from an unpredictable event that is not expected to persist. Just like an extraordinary item, details on nonrecurring items can be found in the footnotes of the income statement. They can also be located in a section of the financial statements known as Management Discussion and Analysis, which can be found following a company’s financial statements.

Examples of Nonrecurring Items
As you might guess, there are many examples of nonrecurring items. These can include litigation charges, charges related to letting workers go, repair costs from a fire, tornado or other natural disaster, and restructuring charges to realign a business or operating unit. Finally, emergency costs to repair or replace worn down or broken equipment can also qualify as nonrecurring.

The Differences Between Extraordinary and Nonrecurring Items
Making a proper distinction between an extraordinary item and a nonrecurring one is not the most straightforward exercise. Most financial literature tends to lump one-time items together and focus on separating them from those that are likely to recur in the future. In many cases, this is fine because the most important exercise in analyzing a firm’s financial statements is separating recurring from nonrecurring items.

However, there are differences to note. For instance, nonrecurring items can be recorded under operating expenses in the net income statement. In contrast, extraordinary items are most commonly listed after the bottom line net income figure. They are also usually provided after taxes.

Another important item to note is that International Financial Reporting Standards (IFRS) does not recognize the concept of an extraordinary item.Maker more of a distinction such as with the extraordinary item discussion above that covered the unusual and infrequent differences. In this respect, a nonrecurring item might qualify as an unusual or infrequent item, but not both.

Bottom Line
As noted above, a successful financial analyst will be very skilled at adjusting a company’s reported net income figure. This will include backing out items that are one-time in nature and not likely to persist. Making this distinction will help him or her get a much clearer idea about a firm s financial health and whether it is likely to grow profits going forward.

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