Analyzing Business Earnings 91worksheet, the company’s three-year operating performance is virtually impos-
sible to discern.
The efficient search sequence for identifying nonrecurring items in Ex-
hibit 2.3 was based on the experience of the authors supported by a large-scale
study of nonrecurring items by H. Choi. While the recommended search se-
quence may not be equally effective in all cases, Exhibit 2.37 demonstrates
that most of Baker Hughes’s nonrecurring items could be located by employing
only steps 1 to 5, a sequence that is very cost-effective. In fact, 92% of all
materialnonrecurring items were located through the first four steps of the
search sequence. Further, locating these items requires reading very little text,
and the nonrecurring items are generally set out prominently in either state-
ments or schedules.
Exhibit 2.37 presents information on the efficiency of the search process.
The meaning of each column in the exhibit is as follows:
Column 1: The number of nonrecurring items located at each step in
the search process. This is based on all 17 nonrecurring
items without regard to their materiality.
Column 2: The cumulative percentage of all nonrecurring items
located through each step of the search process. Ninety
four percent of the total nonrecurring items were located
through the first five steps of the search process. All
nonrecurring items were located by step 6.EXHIBIT 2.37 Efficiency of nonrecurring items search process: Baker
Hughes Inc.
Incremental Nonrecurring Items Discovered
(1) (2) (3) (4)
All Non- All
recurring Cumulative Materiala Cumulative
Step and Search Location Items % Located Items % Located
- Income statement 6 35% 6 50%
- Statement of cash f lows 6 71 3 75
- Inventory note 0 71 0 75
- Income tax note 4 94 2 92
- Other income (expense) note 0 94 0 92
- MD&A 1 100 1 100
7a. Significant accounting
policies note 0 100 0 100
7b. Acquisitions and dispositions
note 0 100 0 100
7c. Unusual charge note 0 100 0 100
7d. Segment and related
information note 0 100 0 100
Total nonrecurring items 17 100% 12 100%
aFive percent or more of the amount of the net income or net loss, on a tax-adjusted basis.