Analyzing Business Earnings 95- There are no agreed-upon definitions of nonrecurring items as part of
GAAP. Moreover, a variety of labels are used beyond the term nonrecur-
ringand they include special, unusual, nonoperating,and noncore. - It is common to treat items as nonrecurring even though they may appear
with some regularity in the income statement. However, these items are
usually very irregular in terms of their amount as well as whether they are
revenues/gains or expenses/losses. - The key question to pose in making the nonrecurring judgment is: Will
underlying trends in operating performance be obscured if the item re-
mains in earnings? - Many material nonrecurring items will be separately disclosed on the face
of the income statement. However, a substantial number will be disclosed
in other statements and locations. It is typically necessary to extend the
search for nonrecurring items well beyond the income statement. - In response to reductions in the time available for a whole range of im-
portant activities, an efficient and abbreviated search sequence is pre-
sented in the chapter and illustrated with a comprehensive case example.
While a comprehensive review of all financial reporting is the gold stan-
dard, reliable information on sustainable earnings can typically be devel-
oped while employing only a subset of reported financial information.
FOR FURTHER READING
Bernstein, L., and J. Wild, Financial Statement Analysis: Theory, Application, and
Interpretation,6th ed. (Homewood, IL: Ir win McGraw-Hill, 1998).
Comiskey, E., and C. Mulford, Guide to Financial Repor ting and Analysis(New
York: John Wiley, 2000).
Comiskey, E., C. Mulford, and H. Choi, “Analyzing the Persistence of Earnings: A
Lender ’s Guide,” Commercial Lending Review(winter 1994–1995).
White, G., A. Sondhi, and D. Fried, The Analysis and Use of Financial Statements
(New York: John Wiley, 1997).
Mulford, C., and E. Comiskey, Financial Warnings(New York: John Wiley, 1996).
Special Committee on Financial Reporting of the American Institute of Certified
Public Accountants, Improving Business Repor ting—A Customer Focus(New
York: AICPA, 1994).
INTERNET LINKS
http://www.fasb.org This site provides updates on the agenda of the FASB.
It also includes useful summaries of FASB statements
and other information related to standard setting.
http://www.freeedgar.com This site provides a very convenient alternative source
of SEC filings.