Are restructuring charges an operating expense or non-operating (such as unusual/infrequent) expense under IFRS?
Restructuring the business can be a pretty significant undertaking and generally would not be considered part of “normal” operating activities. Therefore, it is a non-operating expense. That has always been my understanding anyway.
Restructuring charges are generally considered a nonrecurring event that is unusual or infrequent. This is not to be confused with an extraordinary item, which is both unusual in nature and infrequent in occurrence. Items that are infrequent or unusual will should be reported as a separate line item before tax. This is to say that they will be shown gross of tax on the income statement. Extraordinary items on the other hand, are shown after income from continuing operations and shown net of tax.
Another consideration is discontinued operations. To meet this classification, the business line must meet certain requirements, which includes a pending sale or active marketing of the business line by management. This is also shown as a separate line item after income from continuing operation and shown net of tax.
Hope this helps.
i have the cfa mock exam in front of me and they clearly took restructuring charges as operating (i.e. to be taken into account when calculating operating profit) under US GAAP
SHow us the questions, please?
Under USGAAP restructuring costs are included in OPEX thus in EBIT. This is the CFA Institute’s explanation on mentioned Mock question. Isabellano9 is right.
Under IFRS restructuring is not operating cost.
Can anyone verify this, i cannot find this anywhere in my notes.
I can verify insofar as I have seen it crop up in a couple of mock exam questions, usually for a CFO calculation. Seems to be that for GAAP, yes you do need to account for restructuring costs when calculating CFO, however I also don’t really recall reading this in the text.
I don’t recall seeing this in the curriculum.
100% sure that restructuring is operating in GAAP. I think it is the same for IFRS, as I understand from the text below IFRS require that items of income or expense that are material and/or relevant to the understanding of the entity’s financial performance should be disclosed separately. Unusual or infrequent items are likely to meet these criteria. Under US GAAP, which allow items to be shown as extraordinary, items that are unusual or infrequent—but not both—cannot be shown as extraordinary. Items that are unusual or infrequent are shown as part of a company’s continuing operations. For example, restructuring charges, such as costs to close plants and employee termination costs, are considered part of a company’s ordinary activities. As another example, gains and losses arising when a company sells an asset or part of a business, for more or less than its carrying value, are also disclosed separately on the income statement. These are not considered extraordinary under US GAAP because such sales are considered ordinary business activities.