Unusual times can lead to unusual and significant costs related to this pandemic we are currently experiencing.  Accounting for these costs is understandably a concern for owners and those in a company’s accounting department.  We want to help you understand how such expenses should be accumulated and recorded within an income statement.

Costs associated with the COVID-19 situation may include:

  •       IT consultants and related hardware
  •       Equipment needs for remote workers
  •       HR consultants and policy design
  •       Payroll related to sick leave
  •       Production delays due to supplier issues
  •       And many others

Costs such as those listed above are considered “unusual” and/or “infrequent” and should be accounted separately, and presented in the income statement as a component of income from continuing operations.  Back in 2015, professional standards eliminated the option of presenting these types of costs as “extraordinary” expenses. But the concepts of unusual and/or infrequent still exist.

 Unusual – an event or transaction that has a high degree of abnormality and is clearly unrelated to (or only incidentally related to) the entity’s typical and ordinary activities, taking into account the operating environment.

 Infrequent – an event or transaction that would not reasonably be expected to recur in the foreseeable future, taking into account the operating environment.

The entity’s operating environment refers to the characteristics of its industry, the geographical location of its operations, and the nature and extent of governmental regulation. Taking the operating environment into consideration helps determine whether an event or transaction is abnormal.  For example, a past event experienced by an entity, such as a natural disaster or industry volatility, provides evidence to assess the probability of it occurring again in the foreseeable future.

Accounting Treatment

Significant costs that are considered “unusual” and/or “infrequent” should be presented as a separated component of income from continuing operations.  Alternatively, these types of costs can be disclosed in the notes to the financial statements (FASB ASC 220-20-50-1). You should identify and document such costs considered by your organization that meet the above criteria, and record them separately from “normal” operating expenses.  This will assist with future analysis of operating income and expense, and also facilitate the reporting for insurance proceeds and possible governmental assistance.

In addition, the financial statements should include a footnote that discloses the events that have occurred subsequent to year-end, but before issuing the financial statements, if significant (FASB ASC 855-10-20).  For example:

Subsequent Event

In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) originated in China, and has since spread to a number of other countries, including the U.S. On March 11, 2020, the World Health Organization characterized COVID-19 as a pandemic.  In addition, several states in the U.S., including California, where we are headquartered, have declared a state of emergency.

Potential impacts to our business include disruptions or restrictions on our employees’ ability to work. In addition, some of our customers and suppliers could be adversely affected, resulting in additional disruptions to our operations and an impact on our operating results. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which health epidemics such as COVID-19 could adversely impact our business. Although we are continuing to monitor and assess the effects of the COVID-19 pandemic on our business, the ultimate impact of the COVID-19 outbreak or a similar health epidemic is highly uncertain and subject to change.

As you encounter these unusual and infrequent costs due to the COVID-19 outbreak, and need help accounting for these costs and other accounting questions, know that LSL CPAs is here and ready to assist you.


Mike Mangold

Mike specializes in attest and audit services for privately held businesses across a variety of industries. His clients range from manufacturers and auto dealerships to service firms, wholesalers and distributors. Mike also oversees audits of 401(k) benefit plans and is a peer reviewer for the AICPA Peer Review Program administered by the California Society of Certified Public Accountants. You can reach Mike at 714-672-0022. Read Mike's full bio.