There are significant differences in the ways generally accepted accounting principles, or GAAP, and the international financial reporting standards, or IFRS, treat income or expense items that are irregular. Investors should understand these items and how they are reported.
Unusual or Infrequent Items
Some items occurring on income statements are reported separately from normal income, because they are considered irregular and nonrecurring. Special considerations are given to so-called unusual or infrequent items to provide clarity about special or rare circumstances to investors or regulators about a firm’s current and/or future financial performance. Examples of unusual or infrequent items include gains or losses from a lawsuit; losses or slowdown of operations due to natural disasters; restructuring costs; costs associated with acquiring another business; and plant shutdown costs. Some unusual items are also categorized as discontinued operations or an adjustment due to changing accounting methods.
Under U.S. GAAP
For GAAP, unusual or infrequent items appear on an income statement gross of any tax implications. These items are presented separately on the income statement, and earnings per share for extraordinary items are either in the income statement or in the notes. Per Financial Accounting Standards Board, or FASB, rules, events that are both unusual and infrequent are listed as extraordinary items on an income statement, such as losses from theft or early retirement of debt.
Under IFRS
The IFRS does not hold special distinctions for items of operational nature that occur irregularly or infrequently; rather, all results are disclosed as revenues, finance costs, post-tax gains or losses, or results from associates and joint ventures. The International Accounting Standards Board, or IASB, ceased recognizing “extraordinary” items under IFRS rules in 2002. The IFRS has a separate disclosure required for income or expenses of abnormal size or nature. These disclosures can be on the face of the income statement or in the notes.