In: Accounting
What constitutes Extraordinary items ? What was the treatment of 9/11 losses regarding extraordinary items ? Do you agree or disagree with this ? What is the current treatment of extraordinary items ?
Extraordinary items are abnormal items that are to be accounted for in the accounting. It includes all the financial transactions related to abnormal events.
Examples of such extraordinary items would be the destruction of production facility by an earthquake.
Treatment of 9/11 Loss
There was an emergency issues task force set up for the same under FASB, which held that the same shall not be treated under extraordinary items for financial reporting purposes.
The reason given for the same was that one line item in the financial statements cannot quantify the widespread and pervasive effect of the event on the financial statements of a company and the economy as a whole. Therefore, it would not be right to do so for the fair presentation of the financials.
I would agree, with the treatment done by the companies during the event - because it is very hard to quantify all the effects of the event (whether monetary or nonmonetary) on the financial position of the company. For example, there was huge was a huge loss to the airline companies and other ancillary businesses during the tenure, which could not be quantified with a single line item. Also, extraordinary items are considered after taking tax reduction into the account - which would have been wrong for the companies suffering huge losses from the event.
Presently, extraordinary items are shown in the Income Statement after computation of Net Income and taxes.