Understanding Special Items

Christian Barslund Jepsen & Tanja Sørensen Nadal

Student thesis: Master thesis


Special Items has been a subject of discussion for several years. The definition has not been clarified by legislators, and up until recently, not a single suggestion for the definition had been made within the IFRS. However, Special Items has become a more common tool within accounting, and so a formal definition is now of greater importance. It is especially concerning for users of a company’s financial statement, since the use of creative presentation methods has become more common. This has brought an increased focus from the International Accounting Standards Board (IASB) that has suggested a definition of this line item, and how to account for it.
This thesis defines Special Items as being significant events and/or transactions, wherein the nature, frequency and/or size is of unusual character. In relation to the research, interviews with the users of the financial statement have been conducted. It is found that the users disagree on how the issue should be handled to achieve comparability, and there is also disagreement on whether anything should be done at all. Therefore, it can be assessed that this Special Item is not considered equally relevant to all stakeholders.
Special Items is an estimatebased post, and for this reason there is an inherent risk that management could apply this for the obtainment of financial parameters set by incentive programs through Earning management. Listed European companies have an increased use of incentive parameters that can be affected by these estimatebased Special Items, as opposed to Danish com-panies. It has not been possible to confirm or refute, whether there is Classifications shifting and/or Earnings management, as the classification of this line item in the financial statement is based on subjective estimates.
Even though there are no legislation on the matter, listed companies are increasingly seen to agree on consistent application of Special Items or similar. However, it is still concluded that legislation regarding Special Items should be passed going forward, in order to ensure correct recognition and application of the post, and to ensure transparency and comparability across companies and business fields.
Taking all of the above into account, it is concluded that there is a need for further regulatory changes on this matter. These changes should attempt to reduce the current field of application, where management may have too much liberty due to, among other things, the application of Classifications shifting through earnings management. The IAS 1 exposure draft, developed by IASB is considered a recognition of the application gap, and hereby confirms that there is a present need for clear guide lines on the subject, and so the Exposure draft, in its present format, is trying to remedy the issue.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2020
Number of pages127