A loss that occurs because of an unforeseen and generally unforeseeable event that affects the company. For example, a company may suffer a loss if it sells one of its factories for less than its market value. Extraordinary losses are generally not repeatable. Balance sheets usually record extraordinary losses separately from other losses to account for this. See also: Extraordinary Gain.
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A loss caused by an unusual, infrequently occurring event or transaction. For example, a firm might sell a money-losing business at a price lower than the value at which the business is carried on its balance sheet.
Case Study Sometimes the ordinary is extraordinary and the extraordinary becomes ordinary. A task force of the Financial Accounting Standards Board (FASB) announced on October 1, 2001, that the September 11, 2001, terrorist attacks on the World Trade Center and Pentagon were not considered "extraordinary" events for accounting purposes. The FASB decision meant companies affected by the airplane hijackings could not treat disaster-related expenses as extraordinary, but rather would have to record costs as part of normal business operations in reporting income according to generally accepted accounting principles. Choosing to view the costs as ordinary rather than extraordinary was an important and controversial decision because investors tend to view extraordinary expenses as one-time events that are less relevant to a company's ongoing financial health. If income from continuing operations and pretax income are substantially different in a reporting period, analysts and investors generally view the former, rather than the latter, as the most important information. In part, the task force made its decision on the basis that the disaster affected nearly all businesses during what had become a poor business environment, so it was difficult to determine whether expenses were directly related to the disaster or to the deteriorating economy. The accounting group was concerned that many companies would attempt to take advantage of the disaster and classify all sorts of charges as extraordinary even though the firms had been planning to take many of these same charges prior to the disaster. The FASB decision prevented firms from doing this.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.