[Art Van Delay]

Midway Co. had the following transactions during 20X1:

$1,200,000 pretax loss on foreign currency exchange due to a major unexpected devaluation by the foreign government

$500,000 pretax loss from discontinued operations of a component

$800,000 pretax loss on equipment damaged by a hurricane. This was the first hurricane ever to strike in Midway’s area. Midway also received $1,000,000 from its insurance company to replace a building, with a carrying value of $300,000, that had been destroyed by the hurricane.

Why is the first event not an extraordinary item?

[tuanxn]

I think the argument is that foreign exchange rates change all the time so they are not considered infrequent or unusual.

[JohnWayneIsGod]

Changes in foreign currency exchange are not unusual in nature and infrequent. Although one could logically argue that a large change in certain foreign currencies should lead to an extraordinary loss, GAAP doesn't agree.

FAR - 80

Courage is being scared to death, but saddling up anyway.

-John Wayne

[greg2015]

Extraordinary items are rarely encountered in practice since it is very difficult for something to be both infrequent and unusual. Interestingly, after the 9/11 attacks, the FASB issued specific guidance that stated that even the effects of those attacks would not be considered extraordinary.

Regarding the question, while such a large foreign currency change might be considered infrequent, it would not be considered unusual because it is expected that foreign currency rates will be subject to major changes at some point.

Because the concept is used so rarely in practice, the FASB issued guidance earlier in 2015 to eliminate the concept of extraordinary items.

AUD: 99
FAR: 95
BEC: 89
REG: 87

AICPA Ethics: 91

Licensed Illinois CPA

[Author]

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