Lesson 5 of 9 · All lessons in this module
  1. Revenue recognition: core principle and the five-step model
  2. Revenue recognition in practice and what it means for analysisVideo lesson
  3. Expense recognition and capitalising versus expensing
  4. Capitalised interest and capitalised development costsVideo lesson
  5. Non-recurring items, discontinued operations and accounting changesVideo lesson
  6. Basic EPS and the weighted average number of sharesVideo lesson
  7. Diluted EPS: if-converted, treasury stock and antidilutionVideo lesson
  8. Common-size income statements and margin analysis
  9. Integrated cases: capitalising, restated results and gross versus net revenue

Lesson 5 of 9 · 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.

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