Extraordinary Item

Extraordinary Item: Definition, How It Worked, and What Changed

What an extraordinary item was

An extraordinary item was a gain or loss from an event that was both unusual and infrequent in nature, and thus presented separately on a company’s financial statements. These items were typically one‑time in nature and outside normal operating activities, so companies reported them separately from income from continuing operations and disclosed details in the notes.

Why the concept was removed

In January 2015 the Financial Accounting Standards Board (FASB) eliminated the extraordinary‑item classification from U.S. GAAP. The goal was to reduce the cost and complexity of preparing financial statements by removing the need for companies and auditors to determine whether an event met the narrow “extraordinary” criteria.

What changed in reporting

• Companies no longer classify items as “extraordinary.”
• The separate presentation and tax‑and‑EPS calculations specifically for extraordinary items are no longer required.
• Companies must still disclose unusual or infrequent events and their effects, but without the extraordinary label.
• GAAP permits companies to describe such events with more specific terms (for example, “Effects from Fire at Production Facility”).
• International Financial Reporting Standards (IFRS) never included an extraordinary‑item concept.

Historical criteria (how an extraordinary item was defined)

An event qualified as extraordinary only if it met both conditions:
– Unusual: Highly abnormal and unrelated to the company’s ordinary activities.
– Infrequent: Not expected to recur in the foreseeable future.

When used, the net-of-tax effect of extraordinary items was shown separately on the income statement after income from continuing operations, and companies disclosed the impact on earnings per share.

Examples

Common examples of events that historically qualified as extraordinary included catastrophic losses from earthquakes, tsunamis, major fires and other natural disasters—provided the events were truly unrelated to normal business operations and unlikely to recur.

Key takeaways

• The “extraordinary item” label was removed from U.S. GAAP in 2015 to simplify reporting.
• Companies must still disclose material unusual or infrequent items, but not as “extraordinary.”
• Companies should clearly describe the nature and financial effect of nonrecurring events; specific descriptive labels are encouraged.