When scanning through company financials, you might stumble across a line called ‘extraordinary item’. It’s a term that’s sparked confusion and intrigue for years, particularly in Australia’s dynamic investing landscape. As we move through 2025—with new accounting standards and stricter disclosure rules—understanding these items is more crucial than ever for investors, analysts, and anyone watching the ASX.
What Is an Extraordinary Item? (And Why It Matters in 2025)
Traditionally, an extraordinary item referred to gains or losses resulting from events both unusual in nature and infrequent in occurrence—think natural disasters, one-off legal settlements, or the sale of a major business division. For decades, these items were highlighted separately in financial statements to avoid distorting a company’s underlying performance.
However, global and Australian accounting rules have changed. Since the adoption of IFRS (International Financial Reporting Standards) and AASB equivalents, the formal use of ‘extraordinary items’ in statutory reporting has disappeared. Today, such events are more likely to be reported as ‘significant’, ‘non-recurring’, or ‘one-off’ items in the notes or management discussion sections.
- 2025 regulatory focus: The Australian Securities and Investments Commission (ASIC) has ramped up scrutiny of how companies describe and disclose these non-recurring items, ensuring investors aren’t misled by creative accounting or ‘earnings smoothing’.
- Real-world example: In early 2025, a major Australian insurer recorded a large one-off loss after a cyberattack. Rather than labeling it ‘extraordinary’, the company provided a detailed explanation in its half-year results, in line with ASIC’s latest guidance.
How Extraordinary Items Affect Your Investment Analysis
Extraordinary or significant items can make or break a company’s headline profit. For investors, ignoring these can mean missing the real picture—while overemphasising them can create unnecessary panic or excitement.
- Earnings per share (EPS) swings: A single extraordinary gain (like the sale of a business asset) can temporarily inflate EPS, making a company seem more profitable than it is on an ongoing basis.
- Valuation traps: Using reported profits without adjusting for one-off items can lead to misleading price-to-earnings (P/E) ratios. For example, a mining company recording a large asset write-down in 2025 might appear less profitable, but this may not reflect future earnings potential.
- Dividend decisions: Boards may declare special dividends after extraordinary gains, but investors should question whether such payouts are sustainable.
Australian fund managers in 2025 are placing greater emphasis on ‘underlying’ or ‘normalised’ earnings, stripping out non-recurring items to get a truer sense of company health.
Spotting and Interpreting Extraordinary Items in 2025 Reports
With tighter rules and more detailed notes, investors need to dig a little deeper to spot the impact of extraordinary items. Here’s what to look for in 2025:
- Notes to accounts: Companies must now provide clear breakdowns of significant or unusual items in their financial statement notes, including the nature, amount, and reason for classification.
- Management commentary: Look for explanations in the Directors’ Report or the Operating and Financial Review (OFR). ASIC’s 2025 guidelines require companies to distinguish between recurring and non-recurring impacts on profit.
- Media and analyst coverage: Leading Australian analysts are more frequently adjusting their models for extraordinary items, providing ‘adjusted’ or ‘clean’ earnings figures in their reports.
For example, in February 2025, a major retailer disclosed a $150 million restructuring charge due to store closures. While the charge slashed net profit, the underlying business performed steadily—a nuance highlighted in both the notes and management’s commentary.
Extraordinary Items: Pitfalls and Opportunities
While extraordinary items can cloud the true picture, they also present opportunities:
- Red flags: Frequent non-recurring losses may signal deeper operational or strategic issues.
- Value traps and bargains: One-off charges can drag down a company’s reported earnings, potentially leading to undervaluation by the market—savvy investors look for these hidden gems.
- Transparency matters: With ASIC’s 2025 enforcement push, companies that clearly explain extraordinary items build trust with investors and analysts.
