Why Sept. 11 Wasn’t ‘Extraordinary’ Item
The Financial Accounting Standards Board debated in the weeks following Sept. 11 whether it should craft accounting rules for reporting losses directly connected with the terrorist attacks.
But the Norwalk, Conn.-based board ultimately decided that the economic effects of Sept. 11 could not be reported accurately in a company’s financial statements as a single “extraordinary item,” because of the difficulty of separating the attacks’ effects from other economic conditions.
“Because of the far-reaching effects of the Sept. 11 events coupled with a weakening economy that predated those events, it would be difficult to capture the resulting economic effects in companies’ financial statements,” said Tim Lucas, the chairman of the standards board’s emerging issues task force.
Take a look at the airline industry, Lucas said.
“Air carriers were unable to fly for two days and suffered the effects of rerouting and initiated layoffs in anticipation of lower passenger demand,” he said. “No single line item can capture all of those effects. Other companies representing a broad range of industries are experiencing similar impacts.”
Accounting principles provide for extraordinary item treatment for gains and losses that meet certain technical criteria.
The board concluded that, while the events of Sept. 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.
The board said that the economic effects of the events were so extensive that it would be impossible to capture them in any one financial statement item. And, the board decided, it would be very difficult to separate the direct effects of the terrorist attacks from the indirect ones in a consistent way.
,Chris Cziborr
