The following news item was published on October 7, 2001, less than one month after the September 11 terrorist incident at the World Trade Center:
Many companies already are blaming the Sept. 11 terrorist attacks for a slowdown in profits. But accounting rule-makers aren’t letting them off the hook so easily. A task force of the Financial Accounting Standards Board recently decided against allowing companies to treat costs related to the disaster as an “extraordinary item” in their financial statements. That means the costs must be considered part of normal business operations and deducted from the company’s operating profit.
The FASB was worried that companies would blame the attack for a variety of unrelated costs—essentially hiding bad business decisions or other problems and making profits seems better than they were.
There also was concern that it was too difficult to tell what costs were related to terrorism and what weren’t. The impact of Sept. 11 has been so pervasive, affecting virtually every company, that “it almost made it ordinary,” says taskforce member Dick Stock.
“The task force understood this was an extraordinary event in the English-language sense of the word,” says FASB Chairman Tim Lucas. “But in the final analysis, we decided it wasn’t going to improve the financial-reporting system to show it as an extraordinary item.” (Steve Liesman, “In Translation: What’s Extraordinary—and what’s Not,” The Wall Street Journal, Sunday, October 7, 2001)
Why would the FASB say that the September 11 terrorist incident was not “extraordinary”?