Exceptional Item

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Exceptional Item
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An exceptional item is an accrued transaction fee that should be recorded on the company's balance sheet in accordance with GAAP principles. These are significant items that come from events or transactions that fall within the scope of the ordinary activities of the reporting entity. If the financial statement is to give a true or fair view, exceptional items must be disclosed due to their size or frequency. Exceptional items arise in the ordinary course of business and it must be material[1][2].

Categories of exceptional item

There are considered to be two categories of exceptional items:

  • those that must be shown in the income statement after operating profit and before interest,
  • other items that should be attributed or charged to profit or loss on ordinary activities by taking into account statutory items to which they relate and which must be disclosed separately in the form of a note or, in the risk and loss account.

The appearance of the first category of exceptional item is clearly defined. If one of the items listed in the relevant paragraph appears, it should be shown separately in the income statement. To make it easier, we refer to this category as non-operating exceptional items.

However, when it comes to the second category of exceptional items, assigning items to the appropriate statutory headers will in most cases be simple. There are sometimes exceptions when the directors of a reporting entity reach that exceptional items are not explicitly included in the headings of a particular format. It may be necessary to add a new line item in the profit and loss account to include the exceptional item. This can occur if the item does not refer to any particular item in the statutory format. The exact position in the income statement depends on the directors' view of what they think is the most appropriate. The definition of operating profit by directors determines whether items appear before or after the operating profit line, because this term is not formally defined and is not used in statutory formats[3].

Examples of exceptional items

“Examples of exceptional items are[4]:

  • Profits or losses on the sale or termination of an operation.
  • Cost of a fundamental reorganisation or restructuring having a material effect on the nature and focus of the reporting entity's operations.
  • Profits or losses on disposal of fixed assets.”

“In some sectors, exceptional items are an intrinsic part of the business. A car rental company renews its fleet of cars every nine months and regularly registers capital gains. Exceptional items should then be analysed as recurrent items and as such be included in the operating profit. For smaller companies, exceptional items tend to be one-off items and as such should be seen as non-recurring items. It makes no sense to assess the current level of non-recurring items from the perspective of the company's profitability or to predict their future trends. Analysts should limit themselves to understanding their origin and why, for example, the company needed to write down the goodwill[5].”


  1. M. Davies, R. Paterson, A. Wilson (1997), p. 1281
  2. M. Hanif, A. Mukherjee (2018), p. 10.27
  3. M. Davies, R. Paterson, A. Wilson (1997), p. 1281-1282
  4. M. Hanif, A. Mukherjee (2018), p. 10.27
  5. P. Vernimmen, P. Quiry, M. Dallocchio, Y. L. Fur, A. Salvi (2014), p. 155


Author: Monika Wójcik