Lesson 5 of 8 · 13 min
Non-recurring items, discontinued operations and accounting changes
To forecast earnings, separate what will recur from what will not: discontinued operations are shown net of tax below continuing operations, unusual items stay inside continuing operations, and accounting changes are restated backward or applied forward depending on their type.
In short
- IFRS requires separate disclosure of material or relevant items; US GAAP shows material unusual or infrequent items separately within continuing operations. Restructuring charges and gains or losses on asset sales are ordinary activities.
- Discontinued operations (a component the company has disposed of or plans to dispose of, with no continuing involvement, separable physically and operationally) are reported net of tax at the bottom of the income statement, with per-share amounts; related assets and liabilities are held for sale.
- Changes in accounting policy are applied retrospectively (prior periods shown are restated) unless impractical. New standards may allow a modified retrospective approach: adjust opening retained earnings instead.
- Changes in estimates are applied prospectively: current and future periods only.
- Prior-period errors are corrected by restating prior periods; the disclosures may reveal weak controls. Acquisitions (scope) and exchange rates also affect comparability, but their effects need not be disclosed.
Unlock this lesson free for 7 days
Create a free account to get 7 days of full access — every lesson, video, flashcard, mock and the question bank. No card needed.