The Rise and Demise of Abnormal Items

Abstract

Before 2001, Australian companies reported abnormal items on the face of the income statement or by way of note. In response to perceived abuses in classifying items as abnormal, AASB 1018 was reissued in October 1999 with the reference to abnormal items removed. We analyse the implications of the changes to accounting standard requirements relating to abnormal items, and examine whether there is empirical evidence of opportunistic classification of operating profit items as abnormal. Our results suggest that some companies may have opportunistically classified large expense items as ‘abnormal’ to boost their reported ‘normal’ earnings number.