GAAP Rules Will Change as Result of Terrorist Attacks
Editor's Note: On Friday, September 28, the Financial Accounting Standards Board elected not to accept this plan of providing extraordinary treatment for losses stemming from the September 11, 2001 terrorist attacks. Follow this link  for the latest information on this topic.
In what is being described as an unprecedented move, the Emerging Issues Task Force (EITF), a group that operates under the auspices of the Financial Accounting Standards Board (FASB), has announced a plan whereby U.S. firms that have suffered a financial loss due the recent terrorist attacks will be able to treat the loss as extraordinary on company financial statements, thus not impacting the company's current income or loss.
The task force has reached tentative conclusions for what items will constitute extraordinary losses and how such losses will be reported. Discussion has centered around losses such as the cost of temporary rental property to replace lost office space, costs associated with grounded airplanes, costs for providing grief counseling to employees, and severance pay for workers laid off as a direct result of the attacks. Costs that represent more permanent expenses, such as costs to rebuild lost office space, costs of increased airport security, and costs associated with decreased flight bookings, are not to be included among extraordinary expenses.
The task force is recommending that companies directly affected by the terrorist attack must write down property losses in the current quarter, and that those losses will be accounted for as extraordinary.
The EITF is made up of 13 members drawn primarily from the accounting profession and was formed in 1984 to respond to timely financial issues and to make recommendations to the FASB. The Chief Accountant of the Securities and Exchange Commission attends the EITF meetings as an observer. When the EITF reaches a consensus, defined as 11 of the 13 members, as they have done in this case, the consensus becomes part of generally accepted accounting principles (GAAP).
Details of the conclusions drawn by the EITF will be published in draft form on the FASB Web site  on Wednesday, September 26. Task force members expect to meet on Friday, September 28, to finalize guidance on this issue.