Extraordinary items are unusual events or transactions that are distinguished by their nature and infrequency of occurrence. These items are reported in full in the income statement in the interim period in which they occur, net of income taxes.
Gains or losses resulting from the disposal of a business segment, which represents a separate major line of business or class of customer, are also reported separately in the income statement, net of the related income tax effects. In interim reports, these gains or losses are reported in full in the interim period in which they occur.
When accounting changes are made, it is important to ensure that the financial performance of different periods can be compared.
There are three types of accounting changes:
- changes in accounting principles,
- changes in accounting estimates, and
- changes in the reporting entity.
The cumulative effect of a change in accounting principles is typically included in the net income of the period in which the change is made. Changes in accounting estimates only affect current and future periods.
If a change in accounting principles is made during the first interim period of a fiscal year, the cumulative effect of the change on retained earnings at the beginning of that fiscal year is included in the net income of the first interim period. If the change is made in a period other than the first interim period, financial information for the pre-change interim periods of the fiscal year is restated using the newly adopted accounting principle and the cumulative effect of the change is included in the restated net income of the first interim period of the fiscal year.