Question

1.  Several ASU's have been issued by the FASB over the last several years. Accounting Standards Update No. 2015-01 Extraordinary and Unusual Items was issued in the beginning of 2015.

Required: (Address only extraordinary items in your answer.)

1.What was the reason for this update?

2.What was the standard before and how has it changed the presentation of extraordinary items?

3.Do you think this is an improvement? Give two reasons for your answer.

Answer 1

1. The reason for this update was to reduce the complexities in the accounting standards / GAAP and also maintaining the significance of the information shared with the stakeholders.

Further, such transactions happens on a very rare basis but it takes a huge amount of time of auditors to analyze every case from that purview & if it falls calculate the proportion of earning per share allocated to extra-ordinary item as well. Hence, the time consumption was significantly higher than the frequency of events.

2. In the previous guidance, the items eligible for classification under extra-ordinary items were required to be shown separately under the income statement, net of tax. Further, there was a separate disclosure of income as well along with the above EPS share allocation reporting.

This separate representation (Net of tax income & corresponding EPS share) will no longer be required.

3. Yes, this is an improvement due to following reasons-

• It reduces cost & time consumption as auditors were spending huge amount of time & incurring cost as well to identify extraordinary items & make the necessary treatment.
• It has reduced complexities. Since, the frequency was very rare the removal has not impacted the significance of financial information shared with stakeholders & the complexities have also reduced.