| 19 |
Criteria
for
Extraordinary Items |
|
Judgment
is required in segregating extraordinary items on the income statement.
An event or transaction
should be presumed
to be an ordinary and usual activity of the reporting entity, the
effects
of which should be included in income from operations, unless the
evidence
clearly supports its classification as an extraordinary item.
|
| 20 |
Extraordinary
items are
events and transactions that are distinguished by both of the following: |
|
(a) |
Unusual
Nature--should possess a high degree of abnormality and be
clearly
unrelated to, or only incidentally related to the ordinary and
typical
activities of the entity, taking into account the environment in which
the entity operates. |
|
(b) |
Infrequency
of occurrence--should be of a type that would not
reasonably
be expected to reoccur in the foreseeable future, taking into account
the
environment in which the entity operates. |
| 21 |
Unusual
Nature--Specific
characteristics of the entity, such as type and scope of operations,
lines
of business, and operating policies, should be considered in
determining
ordinary and typical activities of an entity.
Environment
is a primary consideration in determining whether an underlying
event
or transaction is abnormal and significantly different from the
ordinary
and typical activities of the entity.
Environment includes
such factors as:
|
|
1. |
Characteristics of the
industry or industries
in which it operates. |
|
2. |
The nature and extent of
governmental regulation. |
|
3. |
The geographical location of
its operations. |
|
An event or
transaction may
be unusual in nature for one entity but not for another because
of
differences in their respective environments.
Unusual nature is not
established by
the fact that an event or transaction is beyond the control of
management.
|
| 22. |
Infrequency of
Occurrence--not
reasonably expected to recur in the foreseeable future.
Environment should be
taken into account.
Accordingly, a specific
transaction
of one entity might meet that criterion and a similar transaction
of another entity might not because of different probabilities of
recurrence.
Mere infrequency of
occurrence of a
particular event or transaction does not alone imply that its effects
should
be classified as extraordinary.
An event or transaction
of a type that
occurs frequently in the environment in which the entity operates
cannot,
by definition, be considered as extraordinary, regardless of the
financial
effect.
|
| 23. |
Certain gains
and losses should
not be reported as extraordinary items because they are usual in nature
or may be expected to recur as a consequence of customary and
continuing
business activities. Examples: |
|
(a) |
Write-down or write-off of
receivables,
inventories, equipment leased to others, deferred research and
development
costs, or other intangible assets. |
|
(b) |
Gains or losses from
exchange or translation
of foreign currencies, including those relating to major devaluations
and
revaluations. |
|
(c) |
Gains or losses on disposal
of a segment
of a business. |
|
(d) |
Other gains or losses from
sale or abandonment
of property, plant or equipment used in the business. |
|
(e) |
Effect of a strike,
including those
against competitors and major suppliers. |
|
(f) |
Adjustment of accruals
on long-term
contracts. |
|
In rare cases,
gains or losses
such as (a) and (d) above should be included in the extraordinary item
category if they are a direct result of a major casualty (such as
an
earthquake), an expropriation, or a prohibition under a newly enacted
law
or regulation that clearly meets both criteria specified in paragraph
20.
Any portion of such losses
which would have
resulted from a valuation of assets on a going concern basis
should
not be included in the extraordinary items.
Any gain or loss on
disposals of a
segment of a business should be accounted for as prescribed in this
opinion
and never should constitute an extraordinary gain or loss even if both
criteria for an extraordinary item are met.
|
| 24 |
Materiality--The
effect of an
extraordinary event or transaction should be classified separately in
the
income statement if it is material in relation to income before
extraordinary
items or to the trend of annual earnings before extraordinary items, or
is material by other appropriate criteria.
Items should be
considered individually
and not in the aggregate in determining whether an item is
material.
However, the effects of a series of related transactions arising from a
single specific and identifiable event or plan of action that otherwise
meets the two criteria in paragraph 20 should be aggregated to
determine
materiality.
|
| 26 |
Disclosure of
Unusual or Infrequently
Occurring Items--A material event or transaction that meets one or the
other of the criteria for an extraordinary item, but not both, should
be
reported as a separate component of income from continuing
operations.
The nature and financial effects of each event or
transaction
should be disclosed on the face of the income statement or,
alternatively,
in notes to the financial statements. Gains or losses of a
similar
nature that are not individually material should be aggregated.
Such items should not
be reported on
the face of the income statement net of income taxes or in any
manner
inconsistent with the provisions of paragraphs 8 and 11 of this opinion
or in any other manner that may imply that they are extraordinary
items.
Similarly, the earnings
per share effects
of those items should not be disclosed on the face of the income
statement.
|
| 27 |
Effective Date
This opinion is effective for
events and
transactions occurring after September 30, 1973.
|