Final answer:
Extraordinary items were unusual and infrequent events, like natural disasters or expropriations, that companies listed separately in financial statements. Although no longer categorized under current GAAP, recognizing such events provides insight into a company's irregular financial impacts.
Step-by-step explanation:
The term extraordinary items refers to events and transactions that are distinct from the ordinary activities of a company. They are both unusual in nature and infrequent in occurrence. Prior to 2015, when the Financial Accounting Standards Board (FASB) eliminated the concept from Generally Accepted Accounting Principles (GAAP), these items were separately classified on the income statement. Nonetheless, the concept is still useful for understanding unique, non-recurring events that can affect a company's financial position.
Four common examples of extraordinary items, historically speaking, could include:
- Losses from natural disasters, such as earthquakes or hurricanes, if they are uncommon in the area where they occurred.
- Gains or losses from expropriations of property by a foreign government.
- Insurance settlements received for events that are not regularly occurring.
- Unforeseen regulatory changes causing significant financial impact.