A big reversal from the Financial Accounting Standards Board.
FASB’s Emerging Issues Task Force has ruled that the September 11 terrorist attacks were not an “extraordinary” event…at least from an accounting standpoint.
This means that companies will not be able to break out as a separate line-item costs stemming from the attacks and classify them as an “extraordinary item” in their financial statements. Rather, these expenses will be considered part of normal business operations and lumped with all other costs.
The ruling, which was published on the FASB Website, is effective immediately . “The task force understood this was an extraordinary event in the English-language sense of the word,” Chairman Tim Lucas told the Wall Street Journal. “But in the final analysis, we decided it wasn’t going to improve the financial-reporting system to show it” as an extraordinary item standing separate from continuing operations.
The ruling came as something of a surprise, given that last week the FASB task force had reached the exact opposite conclusion — and had actually issued guidelines for how companies can account for the disaster as an extraordinary item. CFO.com reported on that prelimary task force issue last Thursday.
But on Friday, FASB reversed course. The reason? According to the organization’s Web site, ”While the events of September 11 were certainly extraordinary, the financial reporting treatment that uses that label would not be an effective way to communicate the financial effects of those events and should not be used in this case.” The statement goes on to say that ”…the economic effects of the events were so extensive and pervasive that it would be impossible to capture them in any one financial statement line item.
The upshot of the ruling: Many companies can take advantage by attributing earnings shortfalls to the terrorist attacks without having to quantify them when they report their results for the period.