Extraordinary Items
Extraordinary Items was a now-eliminated GAAP classification for events that were both unusual in nature and infrequent in occurrence, reported separately on the income statement net of taxes; FASB eliminated the concept in 2015 (ASU 2015-01) after it became a tool for income manipulation.
Under pre-2015 GAAP, an extraordinary item was defined as a transaction or event that met two criteria simultaneously: it had to be unusual in nature (not related to the ordinary and typical activities of the entity) and it had to be infrequent in occurrence (not reasonably expected to recur in the foreseeable future). Examples historically included the effects of certain expropriations of assets by foreign governments, losses from unusual natural disasters in areas where such disasters were rare, and the cumulative effect of accounting changes.
The rationale for the separate presentation was to allow investors to isolate recurring, core earnings from truly one-time events outside management's control. If a grain farming company suffered a crop loss from a once-in-a-century flood in a historically dry region, presenting that loss separately from normal operations gave readers a clearer view of sustainable earnings.
In practice, the extraordinary items classification became a significant source of abuse. Companies and their auditors applied it inconsistently, sometimes classifying losses as extraordinary to exclude them from headline earnings and other times arguing that similar events did not qualify. The FASB observed that in many cases, labeling something 'extraordinary' effectively permitted management to present a rosier picture of ongoing profitability by routing charges below the line. Academic research documented patterns consistent with strategic use of the classification.
FASB Accounting Standards Update 2015-01, effective for fiscal years beginning after December 15, 2015, eliminated the concept of extraordinary items from US GAAP entirely. Events previously eligible for extraordinary classification are now reported as components of income from continuing operations, with any unusual or infrequent nature disclosed in the notes rather than through separate income statement presentation. The result is a cleaner income statement structure that pushes investors to understand the nature of individual line items rather than relying on a categorical designation.
For historical analysis of financial statements pre-2015, understanding the extraordinary items classification is important for adjusting legacy EPS figures to comparable post-2015 standards. For current analysis, the concept is relevant mainly as context when evaluating how GAAP has evolved to limit earnings management opportunities.